Risk Management
In terms of risk management, The Company adheres to the Risk Management Framework in accordance with the international standards of the COSOERM under the duties and responsibilities of the Risk Management Committee who acts clearly and independently. Meanwhile, the risk management team is separated into the Risk Management and Legal Department and directly report to the Risk Management Committee independently. There is the Dual Reporting on a regular basis at least once a quarter. Apart from the Risk Management and Legal Department, the Company also has an Internal Audit Department to perform the duties independently and report to the Audit Committee which consists of 3 independent directors.
Furthermore, the company undergoes IT Audit to verify IT system via the third party regularly to conduct a gap analysis in order to improve the system as a part of the internal control. In addition, the Company is in the process of establishing a Corporate Governance Department to provide risk management more concisely.
As of 2020, the risk management team has presented new risk factors that may occur in the future to the Risk Management Committee. This could be risky for sustainable development and requires guidelines for limiting or reduce the risk. Also, the Company has revealed new possible risks that may occur in the future along with the risk management process in the 56-1 report, the annual report 2020, and the sustainability report 2020 as follows:
Emerging Risks
Emerging Risk factors | Risk management process |
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Pandemic Risk Since the rise of the COVID-19 pandemic, the economic recession and lockdowns followed. People started to adopt a new normal in which social distancing is widely encouraged. Activities, including business transactions, are also affected resulting in customizing customer behavior to have exposure to technology. Initially, people are not inclusively familiar with smartphones and online transaction, especially those with lower income or living in rural area which accounted for majority of the company’s customer base. However, the government has leveraged the COVID-19 situation to encourage people nationwide to have access to digital transactions via many government’s subsidy campaigns, thus, equipping wide population with the exposure of digital transformation. As a result, people are getting used to the convenience of staying at home and remotely process transactions anytime, anywhere. In the long run, it may affect customer behavior modification in payment. As the customers avoid entering to use the service at the branches, the sales of other products decrease. Besides, in the social dimension, the main business operation of the Company is to lend with the assets as collateral. The asset review and valuation are an important hedge step. Additionally, the new normal which may shape customers behavior to adopt and be familiar with technology would discourage the customers from willing to come to branches and push the company to rush in digital transformation in order to sustain customers. Furthermore, the intense competition, especially during the time of COVID-19 situation with high pressure from regulators and stagnant economic condition, the interest rate has been significantly affected. In terms of regulators, there has been several policies to lower the ceiling rates in many loan products resulting in the lower margin for many loan providers. On the other hand, the big players in the industry started to intensely lower to rates across many products to compete with each other. In the long run, this phenomenon may set the expectation for customers to get used to the perception of low interest rate structure. |
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Non-Conventional Competitor Risk Since the Bank of Thailand revised the personal loan business license under supervision to supervise the vehicle title loan business and the provincial retail credit business license under the supervision of the Ministry of Finance, the small financial service providers, FINTECH technology developers, including financial institutes both national and international pay attention to the microfinance business. This possibly creates even more intense competition in the industry including competition with technology, expansion of loan products, new microfinance, or even price competition in the future. As the Company is well aware of changing, the preparation is made. The strategies and operational plan are changed in order to be able to cope with and compete in the industry strongly. |
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Climate Change Risk One of the important concerns on the environmental aspect associates with the foreseeing environmental regulations. Since there is a rising trend on the significance of environmental laws in other developed countries such as carbon tax. We are seeing Thai authorities paying more attention to this aspect and are expecting to introduce these regulations soon. The potential impacts will include the charges in direct and indirect taxes and more subsidies to encourage green businesses. |
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Material Issues
Risk factors | Risk management process |
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Conventional Competitor Risk The company has been operating in the microfinance sector for over 28 years and counting. The intense competition in the industry landscape pressures the players to LEAN down in every aspect both in terms of costs and yield. Furthermore, the current economic situation pushes competitors to aggressively acquire customers whether through branch expansion, promotions, dumping interest rates, cross-selling products, etc. These issues are narrowing down the margin gap and challenge many companies’ ability to efficiently manage costs while balancing with the structurally lower yield. |
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Cyber Security The current rapidly developed technology causes the cyber threats to affect all sectors in the economy and national security. The financial industry, financial institutions, and financial service providers are also threatened by such risks. The impact becomes more severe both in the probability and magnitude of the effects which may come in evolving ways and are difficult to prevent or detect. Even though the operation and business model of the Company mainly deal with the tangible assets and offline cash transaction, the process in recording the sensitive information of the customers is in the form of digital. Therefore, the Company is exposed to cyber security risk. |
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Climate change has been occurring around the world and has a direct negative impact on the economy, society and environment. The impact is becoming more severe in Thailand. Climate is a major factor affecting agricultural products, which is considered the main source of income that drives the country’s economy. From the assessment of climate change in Thailand, it shows that the average temperature is likely to rise 1.5 - 2.0 degrees Celsius within the next 40 years, therefore it is very challenging for the agricultural sector. This has caused a direct impact to the company whose target group of customers is mainly engaged in agriculture. Climate emergency, therefore, may result in reduced incomes of farmers which will increase the demand for credit, on the other hand, the quality of the debt decreased. |
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