Thai SMEs at risk from Basel III Banks Capital Rule says Central Bank

Banks in Thailand have successfully implemented Basel III capital requirements starting from January 1, 2013. However, the implementation of the Basel III credit valuation adjustment (CVA) risk capital charge is still under consideration, says Somboon Chitphentom, senior director of prudential policy at the Bank of Thailand. The bank issued a consultation paper on CVA in April 2012 to investigate its merit following concern that it would not be appropriate for the domestic banking sector. “After reviewing feedback from the industry and assessing capital impacts from the quantitative impact study, which used the Bank for International Settlements‘ QIS reporting template, we found that the new capital charge may lead to higher costs for over-the-counter derivatives transactions, and would likely impact businesses especially SMEs [small and medium-sized enterprises], which use derivatives mainly as their hedging instruments,” says Chitphentom. Thai banks will be able to meet the liquidity requirements without much adjustment. He adds: “The main challenge is that the cost of complying with the liquidity coverage ratio would likely translate into higher costs of funds and be passed on to the real sector, affecting both accessibility and price of loans to the private sector, particularly SMEs. The impact would be more acute for any bank-based economies and could hamper economic growth, particularly when considering the combined impacts of various regulatory reforms.” (Source)

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