News Column

SEC relaxes rules on Tier 2 subordinated debentures

July 15, 2014

By Nuntawun Polkuamdee, Bangkok Post, Thailand



July 15--The Securities and Exchange Commission will in the third quarter ease regulations governing Basel III-compliant Tier 2 subordinated debentures by allowing banks to underwrite these securities, says the Thai Bond Market Association (TBMA).

Executive vice-president Ariya Tiranaprakit said the move was aimed at making Basel III Tier 2 instruments more accessible to investors and facilitating financial institutions' rollover of tens billions of baht worth of debentures, with a call option period due this year.

At present, the securities watchdog allows only securities companies to act as underwriters for banks' subordinated debt sales in order to prevent conflicts of interest.

The imminent relaxed regulations come after requests from banks so they could sell the Basel III-compliant Tier 2 subordinated notes to retail investors in addition to institutional and high-net-worth investors and boost demand to absorb the huge supply from the redemption of billions worth of the debt instrument in the coming years.

The rollover of the subordinated notes does not threaten Thai banks' financial position since their capital adequacy ratio is fairly high, far higher than the central bank's minimum requirement of 8.5% of risk-weighted assets. But it will lower banks' ability to lend if they fail to issue the debt instrument to replace maturing notes.

With its subordination risk and the non-payment risk under the non-viability loss absorption clause, the tier-subordinated note is barred by the Bank of Thailand from being sold to retail investors, in line with other central banks' practices. Thai banks have 341 billion baht worth of the outstanding subordinated note, with 56 billion worth callable this year.

The highest amount of Basel III-compliant Tier 2 subordinated securities is 125 billion baht and will mature in 2022, said Suchart Thanathitiphan, the TBMA's assistant vice-president for research and market development.

So far this year, four banks have already issued the Tier 2 subordinated note. Tisco Bank sold 13 billion baht worth of the subordinated securities, while Thanachart Bank earmarked 2.4 billion baht in Tier 2 debentures. Both raised fund from selling the debt instrument to strengthen their second-tier capital.

Krungthai Bank sold US$700 million worth of 10.5-year bonds in May in global markets, with a return of 5.25%. CIMB Thai Bank issued Tier 2 debt worth 400 million ringgit (4 million baht).

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(c)2014 the Bangkok Post (Bangkok, Thailand)

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Distributed by MCT Information Services


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Source: Bangkok Post (Thailand)


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