ACCOUNTING STANDARD/ New banking rules will cut dividends

BOT says institutions will be squeezed by need for higher reserve provisioning

Some commercial banks will soon have their ability to pay dividends to shareholders reduced by their need to set aside additional reserves, according to Bank of Thailand (BOT) assistant governor Krirk Vanikkul.

The banks, which have not been named, are required to set aside additional reserve provisions to comply with the International Accounting Standard, which will soon be implemented in the Thai banking industry.

Krirk said yesterday the banks would not face a dire need to raise funds but would have to pay lower dividends. Once they meet the new international standard, they will be able to resume dividend payments at the old level.

He declined to disclose which banks were under pressure to make further reserve provisions.

Under the new standard, commercial banks must make provision for the amount by which each loan exceeds the bank's future interest income from that loan, in terms of net present value, plus expected income from sales of collateral.

The changes leave those banks whose lending portfolios contain a high level of substandard or doubtful loans feeling the pinch, because they will need to set aside additional reserves.

Krirk said the central bank would adopt the new standard gradually, before full implementation in 2008.

Details will be specified later, and the central bank will need

to study how the banks will be affected by the changed rules.

"The banks must gradually

prepare for the future; otherwise, they will be adversely affected," he said.

Reserves of all banks are currently higher than the central bank's existing requirements and stand at 120 per cent of required reserves.

Meanwhile, Krirk said the BOT would raise the ceiling interest rate for credit-card accounts from the present 18 per cent, in line with increases in the policy interest rate and domestic rate hikes.

However, he did not say by how much the credit-card ceiling would be raised. The Credit Card Club has asked the central bank to raise it to 20 per cent per annum.

Higher interest rates domestically have pushed up the cost of funds to credit-card issuers, as well as other operating costs.

Krirk said the central bank would consider bringing the credit-card rate down again if the market rate declined but that he believed the market rate would not fall soon.

"We will change the interest rate for credit cards to be in line with market rates, which will be fair to all parties. The rate is not fixed rigidly," he said.

He confirmed that outstanding credit-cards loans have not accelerated highly.

In addition, the central bank has asked personal-loan service providers to identify both principal and interest payments separately for every instalment, in order to make the business more transparent.

The request will apply to personal loans starting from early next year.

Krirk said customers currently did not know exactly how much principal or interest they had to pay before signing their contract, nor did they have a thorough understanding of the interest rate.

From : The Nation News
By : Pla
Date : Sep 14, 2006

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