The Bank of Thailand (BOT) said on Saturday that its decision to stop banks from paying interim dividends for the first half of 2020 and suspend share buybacks is because they wanted to protect the country’s financial system.
Veerathai Santiprabhob, BOT’s governor, said the outbreak of the coronavirus is a highly uncertain situation which has “severely impacted the Thai economy without an end in sight”.
This was why the central bank’s move to ban banks from paying out dividends and buying back their own shares were warranted as they want to maintain current capital levels, he said.
“Protecting the immune system of the economy and the financial system is as vital as protecting the healthcare of Thai people,” Veerathai Santiprabhob, BOT’s governor, said in a statement.
“One of the most important immunities for commercial banks is the capital level which acts as a buffer. The capital will also help commercial banks to give out more loans to support economic recovery.”
Veerathai said the capital level of Thai commercial banks has been strong where their BIS ratio in the first quarter of 2020 was at 18.7 per cent.
According to Basel III, a BIS ratio or capital adequacy ratio must be at least 8 per cent of risk-weighted assets.
“Asking for commercial banks to stop paying out dividend and stop buying back shares are measures to make sure that their guard is not down,” he said.
“This is why the BOT is asking for commercial banks review its fund management plans for the next 1-3 years based on the changes in capital level,” he added.
A senior banker told Thai Enquirer that he supported the share buyback program.
“The BOT is telling banks to stop worrying about their own pockets and to help their customers instead to overcome the economic hardship of the crisis,” he said.
The move came after the Federation of Thai Industries (FTI) asked the government to help SMEs gain more access to liquidity.
Supant Mongkolsuthree, FTI’s chairman, told Thai Enquirer on Friday that even though the Bank of Thailand (BOT) introduced a soft loan budget worth 500 billion baht in April, commercial banks are still reluctant to provide liquidity to SMEs in fear of non-performing loans (NPLs).
So far, less than 17 per cent or 82.7 billion baht worth of loans has been approved to 51,991 debtors between April 7, when the soft loan was approved, and June 19.
Avin Sony, head of Institutional Sales at Asia Plus Securities, told Thai Enquirer that while share buyback was already cancelled by most banks the banning of dividends is “definitely shocking>”
“To make this issue a liquidity issue may be unwarranted and premature,” he said.
He said Thai banks have remained “very well capitalized” but delaying loan repayments will definitely hurt the earnings outlook.
“It will not be pretty for the banks,” he said.
Avin said at the end of the day, regulatory risks remain with the banks and will result in further underperformance when compared to other sectors.
But, it also means that down the road, any deregulation would create significant upside for the banking sector. The resumption of the economy will also help revive long term growth.
