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Thailand’s Readiness for Basel II

While only subsidiary banks of global groups seem to be serious about gaining Basel II compliance, it is intersting to see what kind of shape other banks are in with regards to Basel accord. Since pillar 2 (supervisory review) and pillar 3 (market discipline) readiness is difficult to assess, we take a look at the structural readiness, in terms of capital adequacy, first.

Since the aftermath of 1998 crisis, ratio of capital to risk weighted assets has play central role in the reform process, and has sinced become one key provision for existing and new commercial banks with the Financial Sector Master Plan. Thailand, together with Philippines, had set the capital adequacy ratio to 8.5%, slightly higher than Basel requirement of 8%. The average ratio of commercial banks had trend up, bringing it in line with many internationally active banks. (Source: Bank of Thailand)

The Tier 2 capital limit is 50%, as with Basel accord. Definition of qualified Tier 2 capital can be found here.