Adjusting to the tough new Thai banking laws
By Jon Fernquest |
New regulations mean new things to worry about.
The post-coup interim NLA passed a lot of new laws with a lot of radical changes last year (Read article). These laws have been coming into effect recently.
New banking laws come into force today. Banks will have to adjust a lot of their policies and procedures to comply with the new laws.
Today's Bangkok Post reports on how people in the banking industry feel about these new laws. Here is the article in full:
FINANCIAL RISK
Bankers complain about new bank law
SOMRUEDI BANCHONGDUANGLocal bankers are rushing to review their risk management and compliance functions as the new Financial Institutions Business Act formally takes effect today.
Many executives are privately fuming about the complexity of the new law, which intends to modernise the regulatory framework for the financial sector.
Related-party lending is a major complication under the law, which stipulates criminal penalties in many cases for violations.
"In practice, many of the rules will be very difficult to follow. The concept of related party covers a huge range of people, and the felony penalties and prospect for jail sentences for violations represent a massive risk for any bank," one banker said.
Section 48 of the law restricts bank lending to directors and senior executives, their spouses and underage children. This could include a home mortgage or personal loan to a bank executive.
Kannikar Chalitaporn, the president of Siam Commercial Bank, said it was even more alarming that loans to a corporate client could be undermined by the related party rule.
Loans to a client with a director or senior executive married to a bank executive would fall under the rule, potentially forcing the bank to either terminate the customer relationship or force the bank executive to quit.
Chaiwat Utaiwan, the president of Siam City Bank, said that while he understood the good intentions of the law, the Bank of Thailand needed to clarify many points to prevent disruptions of bank operations.
"We frankly don't have a good understanding of all the issues. For instance, Prasert Bunsumpun, the president and chief executive of PTT Plc, is an independent director of the bank," Mr Chaiwat said. "Mr Prasert does not have management authority at SCIB. But we're not certain whether we can offer loans to him."
The issue has massive implications for local banks, which have recruited prominent businessmen to their boards to help set strategy.
Single lending limits represent another sticking point. The new law caps lending at 5% of total capital or 25% of total outstanding loans to any single business group to help limit concentration risk.
The limit would certainly affect loans to large conglomerates such as PTT or Siam Cement Group. Many large firms are likely to turn more to the bond market as an alternative to bank loans as a result.
"Considering that many large companies have many subsidiaries, it will not be easy to follow the single lending rule in practice," a TMB executive said.
"We should see the bond market and equity market rise in importance as a funding source for businesses as a result."
Banthoon Lamsam, the chief executive officer at Kasikornbank, agreed that greater restrictions were inevitable.
"We certainly will become more prudent in operations considering the more complicated rules and stiffer penalties set out under the law," he said.
But Mr Banthoon said he was hopeful that the law, which expands the scope of businesses financial institutions can undertake, would help strengthen Thailand's financial system and bring greater stability overall.
Vocabulary:
radical changes - big changes, changing everything
come into force - become a law that can be enforced
comply with - follow
review Y - go over, checking the details, to make sure they are okay
risk management - special department in companies for monitoring and planning for events that could have an effect on business (See Wikipedia)
compliance - following rules or laws
compliance functions - activities in a company to make sure that the company is following all rules and regulations
Financial Institutions Business Act - Thailand's new set of laws regarding financial institutions
takes effect - when a law starts, from this time the law can be enforced and people can be punished for breaking the law
fuming about - angry about
a framework - a system to deal with a problem
a regulatory framework - a system of regulations to deal with a problem
related-party lending - lending to people you are related to in your family
stipulate - state clearly that something must be done (for example in a condition in an agreement or contract)
a felony - a serious crime
a misdemeanour - not a serious crime
felony penalties - punishments for a serious crime
prospect for - the possibility for, the likelihood or chance that something might happen
your spouse - the person you are married to
alarming - surprising and worrying
a corporate client - a customer that is an important and large company
undermined - made weaker
potentially - could possibly happen
terminate the customer relationship - stop doing business with the customer
good intentions - means to help, not harm
good intentions of the law - the law meant to help the situation (but maybe it didn't)
implications - things that are likely to happen (because of some event or situation)
recruited - find suitable people to fill positions or jobs at a company
prominent - well-known
board, board of directors - the group of elected or appointed people who set the highest level of policy and strategy in a company (See Wikipedia on board of directors and corporate governance)
recruited prominent businessmen to their boards - find suitable well-know businessmen to govern their company
a sticking point - a detail during negotiations that people cannot agree on, that causes a delay or complete halt
caps lending - puts an upper limit on lending, cannot lend above a certain amount
bank capital - bank capital is regulated by law and risk weighted, unlike the capital of normal companies (See Wikipedia on capital requirement)
shareholder's equity, owner's equity, capital - total assets minus total liabilities of an individual or company, the value of a company for the people who own it (See Wikipedia)
outstanding - still exist, have not been settled or finished yet
outstanding loans - loans which have not been paid back yet
concentration - limited to a few different items or kinds of items
diversification - includes a wide variety of different kinds of items
limit concentration risk - make sure that loans are not all in the same kind of business that could fail at the same time
conglomerates - large companies that own many different kinds of companies
inevitable - will happen for sure in the future (but not sure when)
prudent - sensible and careful
stiffer penalties - punishment that hurts more (either physically or financially)
the scope of an activity - the whole area or set of cases that an activity deals with
expand the scope - deal with more things, increase the number of cases that the activity deals with
undertake - do a task (not a simple task, a task that requires some time)
