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Banks Look to Digital Assets and Artificial Intelligence to Bolster Profits

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Banks Look to Digital Assets and Artificial Intelligence to Bolster Profits

As digital assets such as cryptocurrency have gained popularity among local investors, several banks in Thailand have sought to profit from the popularity of digital asset exchanges.

Due to the risks posed by digital assets for individual investors and financial stability, the Securities and Exchange Commission (SEC) and the Bank of Thailand (BoT) have imposed strict rules governing digital businesses.

In addition, the BoT has limited bank investments in digital assets to 3 percent of capital. Using cryptocurrency as a payment method for goods and services has been banned.

Further liberalization of the financial market is also being considered by the central bank.

The BOT plans to grant licenses to virtual banks this year. Because its operations and services are online, the virtual bank does not have a physical location.

The banks can employ staff and provide faster and cheaper lending services by using cutting-edge technology.

Banks Using Artificial intelligence (AI)

Currently, some banks are using artificial intelligence (AI) to make some lending, so they can compete with any potential new competitors.

Ratings were lowered by S&P Global Ratings for four Thai financial institutions while ratings were maintained for the other two – Bangkok Bank and Bank of Ayudhya.

A rating agency noted the building of fragility due to household debts increasing and a large number of debtors due to Thailand’s regulatory treatment that allowed Thai banks to provide more financial assistance to debtors than other countries.

Furthermore, the fragile economic recovery, especially in the tourism sector, as well as the possible adverse effects of Russia-Ukraine tensions could adversely affect bank loan quality in the future. However, S&P noted that the outlook for financial institutions is stable since they are well-capitalized with high loan-loss provisions.

In response to S&P’s concerns, BOT deputy governor Ronadol Numnonda, who is in charge of financial institutions’ stability, argued that the BOT has implemented several measures to encourage banks to continue to assist affected debtors in order to facilitate their post-COVID recovery.

Maintaining strong financial positions

As of the end of 2021, the number of debtors under the financial assistance program dropped to 14 percent of total loans – a significant drop from the peak of 30 percent experienced during the COVID-19 outbreak in July 2020.

Since then, it has become evident that debtors who left the financial assistance program have regained their ability to pay their debts.

The Thai banking system is currently maintaining strong financial positions with high buffers, S&P said. During 2020-21, the Capital Adequacy Ratio (BIS ratio) is 20 percent, and provisioning has increased by Bt430 billion.

The heightened uncertainty has increased banks’ vigilance. Provisioning of Bt890 billion in the banking system equates to 1.6 times non-performing loans, S&P explained.

Additionally, the BOT has mandated regular stress tests of bank capital (2022-13), which have shown that the Thai banking system remains resilient and would be able to withstand future risks and uncertainties.

As Thailand’s economy continues to recover, borrowers’ income and debt serviceability as well as banks’ loan quality should improve.

As of April, the BOT introduced a revised benchmark for financial institutions. This benchmark is so that they treat clients fairly when it comes to service charges, fees, interest, and fines.

This information must be disclosed to clients by financial institutions. If customers cancel their ATM cards or debit cards before their expiration date, banks must refund the fees charged to them.

For collateral appraisal services, banks may not charge borrowers a fee based on the percentage of their loans.

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