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
BIS published a paper that provides an overview on the use of big data and machine learning in the central bank community.
APRA finalized the reporting standard ARS 115.0 on capital adequacy with respect to the standardized measurement approach to operational risk for authorized deposit-taking institutions in Australia.
ECB published a guide that outlines the principles and methods for calculating the penalties for regulatory breaches of prudential requirements by banks.
MAS and The Association of Banks in Singapore (ABS) jointly issued a paper that sets out good practices for the management of operational and other risks stemming from new work arrangements adopted by financial institutions amid the COVID-19 pandemic.
ACPR announced that a new data collection application, called DLPP (Datalake for Prudential), for collecting banking and insurance prudential data will go into production on April 12, 2021.
BCB announced that the Financial Stability Committee decided to maintain the countercyclical capital buffer (CCyB) for Brazil at 0%, at least until the end of 2021.
EIOPA has launched a European-wide comparative study on non-life underwriting risk in internal models, also kicking-off of the data collection phase.
SRB published an overview of the resolution tools available in the Banking Union and their impact on a bank’s ability to maintain continuity of access to financial market infrastructure services in resolution.
EBA is consulting on the implementing technical standards for Pillar 3 disclosures on environmental, social, and governance (ESG) risks, as set out in requirements under Article 449a of the Capital Requirements Regulation (CRR).
ESAs Issue Advice on KPIs on Sustainability for Nonfinancial Reporting