Académique Documents
Professionnel Documents
Culture Documents
Cause of 97 crisis:
Supervised by
Bank of
Thailand1/
Supervised by
MOF (examined
by
BOT) 2/
Note:
Type of deposit
taking
institutions4/
Scope
1.Commercial
bank
1.1 local
1.2 subsidiaries
1.3 retail banks
1.4 foreign bank
branches
-Commercial
banking business
- Capital market, FX,
derivative (for 1.1
and 1.2 only)
2. Finance
companies
3. Credit foncier
companies
4. Specialized
Financial
institutions (SFI)
Objective
Profit max.
Deposit
insurance
premium
Pay 0.47%
of deposit
base
Stability
NPL
Market
share
Good
Low
Large
Good
Low
Small
Good
Low
Small
Medium,
Growing
rapidly
Support
No
Good but subject
financial
contributi
to Government
access
on3/.
intervention
1/
Non deposit taking institutions under BOT supervision are foreign financial
institution
representative
office,
+Profit max.
asset management companies, non-bank (credit card company, personal loan company), e-payment.
2/
Non deposit taking institutions under MOF supervision are Thai asset management company, national credit bureau.
BOT will supervise this group in early 2016.
3/
Under the new Act for specialized financial institution development fund (on 20 Mar 2015), SFI will need to contribute the deposit insurance
premium
to the SFI fund to reduce an unfair competition. The MOF is considering the method of collection and the premium rate.
4/
Other types of deposit taking institutions are savings cooperative and credit union, supervised by Ministry of Agriculture and Cooperatives, with the
scope of managing funds contributed by members and grant loan to members who need credits. The objective is to provide financial service among
The commercial bank and the specialized government credit institution (SFIs) are
the two most important depository institutions for Thailand.
Problem of SFIs
The objective of organizing the SFIs:
To play a key role in providing financial services to
sectors not adequately served by commercial banks such as small and medium enterprises (SMEs),
agricultural and rural enterprises - and also contributed
to the government's social and development policies.
Comments from public:
The regulatory framework is weak, occasionally
subjected to government intervention, the major role is
not fully achieved.
High NPL ratio for SME bank (36.24%of total loan),
and IBANK
6
Regulatory standards for SFIs in terms of capital adequacy ratio and loan loss provision
reserves could be looser than for commercial banks because SFIs are required to run business
that comply with government schemes, FPO director general-Krisada Chinavicharana, 9 Feb
2015
Government saving bank should not be affected by the measure, as it complies with the rule
and are examined by BOT regularly, Director-Mr. Tachapol Kanjanakul, GSB, 1-3 Jan 2015
BOT has examined the Bank for Agriculture and Agricultural Cooperatives twice a year using
the same standard as the commercial bank, the bank stability remain intact, the liquidity
management is better than the requirement, credit quality is good, loan growth increase steadily,
NPL is under control. The measure helps enhance efficiency in the monitoring system and shore
up credibility.., BAAC president- Luck Vajananawat, 31 Jan 2015
SFIs are development banks, applying universal regulatory standard (like commercial bank)
could conflict with their mission. The new regulation under he BOT should be deferred until the
economy improve and get approval from stakeholders, SME Bank chairwoman- Salinee
Wangtal, 24 Mar 2015.
7
Research Question?
Questions:
1. How is the financial condition of depository taking institutions in
Thailand? What indicator should we use?
2. Does the difference in business model and supervision associate
with the difference in the financial condition?
3. Can we infer the risk from the financial condition?
Data: annual data (2006-2013) from Bankscope.
26 observations: 2 finance companies, 4 deposit taking SFIs, 3
foreign bank branch, 2 subsidiaries, and 15 local commercial
bank
8
Operational Efficiency
income to cost ratio (ICR)
Liquidity
-liquid asset to deposit and
borrowing ratio (LADBR)
-Asset to net loan ratio (ATNL)
Note: this method is similar to CAMELS approach which was developed by bank regulators in USA to measure
financial condition of financial institutions. (ie. Capital adequacy, Asset quality, Management, Earnings (profitability),
Liquidity and funding, sensitivity to market risk (loses arising from changes in market prices)
10
Variables
ROAE
0.12
0.35
0.64
NIM
-0.44
0.39
-0.08
LADBR
0.51
0.07
-0.06
Liquidity
ATNL
0.44
0.34
-0.42
Efficiency
ICR
0.18
0.43
0.48
Asset Quality
Capital
LLOSR
-0.04
0.62
-0.41
adequacy
ETA
0.55
-0.20
0.00
Profitability
Principal component 1:
Tradeoff between higher capital adequacy + liquidity
and lower profitability
Principal component 2:
Asset quality and efficiency
Principal component 3:
Tradeoff between higher profitability + efficiency,
and lower liquidity and asset quality
11
Score plot
More components
13
14
Custer analysis
- Principal Components 1-3 are used to classify groups
financial institutions (banks)
- This helps us identify the banks that have similar
financial conditions
- We assume that there is no prior knowledge about
which banks belong to which type or group.
- The grouping will be defined through a cluster analysis
of the data
- This allows us to maximize the similarity of banks
within each cluster, while also maximizing the
dissimilarity between groups that are initially
unknown
15
Group of bank
1
2
3
4
5
6
7
8
9
ETA
LLOSR
NIM
ROAE
ICR
ATNL
LADBR
18
19
Asset quality
& risk provision
Liquidity
RISK
- Funding
- Business
- Regulatory
- Reputation
- Asset composition
and quality
Capital adequacy
&solvency
20
The two major indicators that define the risk of the financial institutions are
the non-performing loan to gross loan (NPL) and the z-score (ZSCORE).
22
Variables
Component 1
Component 2
Component 3
Constant
Observations
Adjusted R-square
Ln(Z-score)
0.48(4.17)***
0.23(1.80)*
0.64(4.08)***
3.46(20.74)***
26
0.58
NPL/gross loan
-1.08(-1.39)
-1.06(-1.02)
-3.49(-3.19)***
4.72(4.16)***
25
0.33
The stronger the financial condition (profitability, liquidity, solvency, credit quality,
efficiency), the lower overall risk and the more stability measured by Z-Score
The stronger the financial condition, the lower the risk (measured by NPL ratio) of
the banks that participate in the lending activities
23
ln(ZSCORE)
0.03(10.95) ***
0.00(-0.19)
0.04(2.51) ***
0.01(1.52)
0.03(3.19)* **
0.01(1.59)
0.98(123.63) ***
-0.43(-0.76)
-0.53(-0.85)
-2.84(-2.86) ***
-1.24(-2.20) **
-1.40(-1.41)
-2.92(-2.95) ***
-0.11(-0.15)
-0.12(-0.12)
1.72(5.79) ***
173
0.64
-0.03(-0.35)
-0.12(-1.22)
0.40(0.81)
0.49(2.27) **
-0.62(-2.31) **
-0.84(-5.93) ***
0.37(1.83)*
-1.48(-2.97)***
-0.45(-0.94)
1.40(2.34)**
0.36(1.05)
-0.24(-0.41)
-0.23(-0.37)
0.09(0.20)
1.35(2.15)**
-1.62(-0.63)
160
0.71
Main findings:
1. The sign of the coefficient for the
financial ratio is correct.
2. Group 7 is employed as base group.
After controlling for the financial ratios,
the base group is relatively more stable
than the other groups.
24
Conclusion
This paper investigates the effects of bank financial performance on the
risk-taking.
The balance sheet items of the 26 financial institutions are carefully
examined. Five main aspects that commonly explain their financial
position are explored, such as profitability, liquidity performance, asset
credit quality, efficiency and capital adequacy.
The research also identifies the group of these financial institutions
according to their balance sheet characteristics.
The implications on the financial risk aspects are analyzed. We found
that the strong financial position significantly associate with the higher
stability, longer distance to distress and lower risk.
25