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Basel III

Sucheera Pinijparakarn
The Nation September 24, 2012 1:00 am

Banks are expected to focus more on the SME segment next year because new Basel requirements will constrain their ability to lend to corporations.

To sustain high returns, banks have to build up their SME port-folio, while the urbanisation trend gives banks more opportunities to extend credit to SMEs, Kevalin Wangpichayasuk, head of money and banking research at Kasikorn Research Centre, said last week.

Banks have to adjust their strategies to cope with Basel III next year, which will raise the minimum Tier-1 capital ratio to 6 per cent from 4 per cent. The more banks lend to corporations, the more their capital will be eaten up.

Corporations can mobilise funds through many channels such as debentures, initial public offerings and infrastructure funds. Corporations in the solar farm business are expected to launch infrastructure funds next year.

Yokporn Tantisawetrat, senior executive vice president and chief risk officer of Siam Commercial Bank (SCB), said it is possible that banks will shift to lending to SMEs and retail customers rather than corporations due to the arrival of Basel III.

Corporate demand for bank credit would not be as brisk as before because companies can raise funds through the capital market.

If banks do not change their business direction, they would see their return on equity decline because Basel III, which sets the minimum capital adequacy ratio at 8.5 per cent, will push up the cost of banks.

Many banks are revising their business models to prepare for the impact of Basel III. SME lending is one of their priorities, he added.

SCB president Kannikar Chalitaporn said earlier that the bank plans to increase the proportion of SME and retail loans.

Krungthai Bank, Thanachart Bank and Kiatnakin Bank are among the banks that would aggressively chase SMEs loans next year.

Kevalin said retail lending next year is expected to return to normal growth after the populist schemes such as the first-car buyer come to an end. Hire purchase loans, which are the key driver of loan growth this year, will be replaced by SME loans. Auto loans, however, will remain a leader in retail banking because some vehicles that could not be delivered to buyers this year will be handed over to them next year.

Commercial bank loans are expected to expand by 11.3 per cent next year, slowing from 13 per cent this year. Outstanding commercial loans this year are expected to reach Bt8.8 trillion.

Demand for larger loans next year would be seen by specialised financial institutions because SFIs must serve public investment. SFIs are expected to maintain this year's loan growth rate of 20 per cent.

The outstanding loans of SFIs this year are expected to climb to Bt4 trillion.

Public investment will be a key engine for economic growth next year because the government will gradually launch infrastructure projects such as flood management systems, mass transit routes and 3G licences, KResearch added.

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Source: http://www.nationmultimedia.com/business/Banks-to-focus-more-on-small-business-loans-30190955.html

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