IMF published a report on results of the Financial System Stability Assessment (FSSA) on Thailand. Also published was the staff report under the 2019 Article IV consultation with Thailand. The FSSA report highlights that the banking sector is resilient to severe shocks, with the stress tests results and sensitivity analysis indicating that the largest banks can withstand a shock broadly as severe as the Asian financial crisis. While data is limited, deposit-taking Specialized Financial Institutions appear to be vulnerable to asset concentration and interest rate risk. Systemic and contagion risks stemming from interlinkages across banks and non-banks are limited. Furthermore, risk analysis could benefit from data improvements, including on liquidity and Specialized Financial Institutions, and from the development of tools to assess concentration risk at an entity level.
The FSSA report notes that the oversight of the financial system is generally strong. Substantial upgrades to the regulatory and supervisory frameworks have been made since the 2008 Financial Sector Assessment Program (FSAP). There is a high level of compliance with international standards. The macro-prudential framework and policies can be further strengthened. The recommendation is to clearly define the roles of the Financial Institution Policy Committee and the Monetary Policy Committee to help ensure that systemic risks are primarily dealt with macro-prudential tools. Despite the recent progress, crisis management framework still has gaps. The report highlights that it is important to develop a resolution toolkit and a framework for resolvability assessments and resolution planning; review and amend relevant legislation to align resolution powers and safeguards with the key attributes; and enhance deposit insurance. Enhancing the funded pension scheme and building capacity to supervise new technologies should be priorities in the financial sector development agenda. While fintech is not a financial stability risk at this time, an overall regulatory strategy should be articulated while supervisory frameworks and capacity need to be strengthened as innovation enters the market.
The FSSA report highlights that the FSAP team and BOT ran parallel solvency stress tests covering credit, market, funding, and interest rate risks under two common macroeconomic scenarios. The results suggest resilience of the banks covered by the exercise to the adverse scenario. Non-performing loan ratios would increase substantially and most banks would experience significant losses in net income and a decline in capital ratios. The exploratory solvency stress tests on Specialized Financial Institutions indicate an important vulnerability under the adverse scenario for certain Specialized Financial Institutions due to limited asset diversification, but the impact could be largely absorbed by high provisioning. Sensitivity tests broadly confirm the overall resilience of the banking system. The results indicate a relatively limited exposure of the banks. Improving the analytical approach to concentration risk is recommended, including by developing analytical tools to assess its implications on systemic risk. Market risk is also moderate for most banks.
The staff report mentions that IMF Directors noted that Thailand’s robust policy framework and ample buffers, created through the authorities’ judicious management of public finances, continue to underpin its resilience to shocks. Directors also welcomed the progress in improving the coverage and effectiveness of financial supervision and macro-prudential policies, which has enhanced financial stability. Directors agreed that financial stability risks appear contained, although household indebtedness is relatively high and there are pockets of vulnerability in the corporate sector. In line with the FSAP recommendations, they encouraged the authorities to strengthen the crisis management and resolution framework, close leakages in the macro-prudential toolkit, and establish an overarching body to help enhance coordination among supervisors.
Keywords: Asia Pacific, Thailand, Banking, Insurance, Securities, Macro-Prudential Policy, FSSA, FSAP, Article IV, Systemic Risk, Stress Testing, Concentration Risk, Resolution Planning, Fintech, BOT, IMF
Previous ArticleECB Updates List of Supervised Entities Under SSM Framework
FSB published the annual report that examines to-date progress toward implementation of climate-related disclosure recommendations of the industry-led Task Force on Climate-related Financial Disclosures (TCFD).
APRA is consulting on the reporting standard for credit risk management (ARS 220.0).
PRA launched a consultation (CP18/20) setting out proposals for the "Contractual Recognition of Bail-in" and "Stay in Resolution" Rules.
FASB is consulting on the XBRL US Data Quality Committee (DQC) Rules Taxonomy (DQCRT) along with two technical guides.
EC published draft of a delegated regulation amending liquidity coverage rules for covered bond issuers.
ESMA published an update to its March 2019 statement on the endorsement of credit ratings from UK.
PRA published Version 2 of the questions and answers (Q&A) on the Branch Return form.
FCA and PRA in the UK, FED in the US, and the authorities in Singapore have fined Goldman Sachs for risk management failures in connection with the 1Malaysia Development Berhad (1MDB).
ISDA launched the IBOR Fallbacks Supplement and the IBOR Fallbacks Protocol, with both becoming effective on January 25, 2021.
BCBS announced that OSFI and the Bank of Canada hosted the 21st International Conference of Banking Supervisors (ICBS) virtually on October 19-22, 2020.