IMF Reports Assess Financial System Stability in Thailand
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
Skilled market researcher; growth strategist; successful go-to-market campaign developer
Credit analytics expert helping clients understand, develop, and implement credit models for origination, monitoring, and regulatory reporting.
Previous ArticleNCUA Proposes to Amend Threshold for Real Estate Appraisals
NGFS Updates Address Short-Term Climate Scenarios and Transition Plans
The Network for Greening the Financial System (NGFS) is exploring the development of short-term climate scenarios to complement its existing scenario framework of long-term climate scenarios.
ISSB Updates Address ESG Issues while IASB Consults on Impairments
The International Sustainability Standards Board (ISSB) is seeking feedback, until August 09, 2023, on the exposure draft that sets out the methodology proposed by ISSB to amend the Sustainability Accounting Standards Board (SASB) Standards' metrics
OSFI to Review Liquidity Adequacy Guidelines and Policy Architecture
The Office of the Superintendent of Financial Institutions (OSFI) is consulting, until June 21, 2023, on a review of the liquidity treatment provided in the Liquidity Adequacy Requirements (LAR) Guideline for wholesale funding sources with retail-like characteristics.
ESRB Publishes Report on Cryptos and DeFi; ECB Updates on Digital Euro
The European Systemic Risk Board (ESRB) published a report that outlines the systemic implications of crypto markets and proposes policy options to address the risks stemming from crypto-assets and decentralized finance or DeFi.
EU Agencies Issue Updates on DORA, ESAP, and Crowdfunding Regulation
The European Supervisory Authorities (ESAs) published a discussion paper on their joint advice to the European Commission (EC) on proposals to specify criteria for critical information and communication technology (ICT) third-party service providers
ESAs Propose ESG Disclosure on STS Securitization, Issue Other Updates
The Joint Committee of the three European Supervisory Authorities (ESAs) proposed to amend the Implementing Regulation 2016/1799 on the mapping of External Credit Assessment Institutions' (ECAIs) credit assessments.
UK Authorities Issue Updates, Finalize Policy on Model Risk Management
The Prudential Regulation Authority (PRA) finalized the model risk management principles for banks, the policy statement PS5/23 on risks from contingent leverage, and PS4/23 on moving senior managers regime forms from the PRA Rulebook.
APRA Revises Implementation Timeline for Operational Risk Standard
The Australian Prudential Regulation Authority (APRA) updated the implementation date of the new cross-industry prudential standard CPS 230 on operational risk management
BCBS Consults on Basel FAQs and Amendments, Issues Other Updates
The Basel Committee on Banking Supervision (BCBS) published a report assessing implementation of the global Basel standards on net stable funding ratio (NSFR) and large exposures (LEX) in South Africa
EBA Announces Multiple Regulatory and Reporting Updates in April 2023
The European Banking Authority (EBA) published consultations on the amendments to the guidelines on risk-based anti-money laundering and countering the financing of terrorism (AML/CFT) supervision