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WorldOctober 1 2014

Bank of Tokyo-Mitsubishi UFJ makes Thai powerplay

Bank of Tokyo-Mitsubishi UFJ's purchase of Thailand-based Bank of Ayudhya last year was indicative of the wealth of opportunities opening up in the south-east Asian economy.
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Bank of Tokyo-Mitsubishi UFJ makes Thai powerplay

Japanese investments started to flood into Thailand in 1985, when a sharp appreciation of the yen prompted export-oriented companies to shift production abroad in order to take advantage of weaker currencies, such as the Thai baht. The south-east Asian country has, for the most part, proven to be a lucrative market for Japan Inc.

Japanese firms account for more than 60% of all the firms receiving tax privileges under the government’s Board of Investment of Thailand, and they contribute about half of the country’s manufacturing output. There are some 1600 registered Japanese companies in Thailand, together with about 43,000 Japanese expatriates, making it the second largest Japanese overseas community after China.  

Putting down roots 

The deep Japanese connection was one of the factors behind Bank of Tokyo-Mitsubishi UFJ's (BTMU's) decision to purchase a 72% stake in Bank of Ayudhya – known locally as Krungsri – Thailand’s fifth largest commercial bank. The Bt170bn ($5.29bn) purchase, made on December 13, 2013, was the second largest overseas investment in a commercial bank by BTMU’s parent company, Mitsubishi UFL Financial Group (MUFG) – Japan’s largest financial conglomerate – after its purchase of Union Bank in the US, which was completed in 2008.

By the end of 2014, Krungsri will be integrated with BTMU’s 50-year-old Bangkok branch, boosting Japanese equity in Krungsri to 76.4%. Krungsri provides BTMU a platform to diversify into retail banking in Thailand and its surrounding countries, building on its already-strong corporate banking presence in the region.

“When we bring BTMU’s corporate portfolio in [through the integration of its Bangkok branch], the ratio of consumer and corporate lending will be 50/50, a nice mix,” says Noriaki Goto, who was made CEO of Krungsri in January 2014.

Mr Goto arrived in Bangkok in time to witness the mass street protests and political unrest that culminated in the military coup of May 22, 2014. Despite ongoing political uncertainties, he says that BTMU, and corporate Japan, is still bullish about the country. “There is no doubt that Thailand is a country to invest in. It’s a proven country,” he says.

Onwards and outwards

Part of Thailand’s attraction is its location in the heart of the Greater Mekong Delta sub-region, which comprises the five countries joined by the Mekong River: Cambodia, Laos, Myanmar, Thailand and Vietnam. Trade between these countries, as well as cross-border manufacturing, is expected to grow with the advent of the Association of South-East Asian Nations Economic Community next year, which will lead to greater integration between the group's 10 member economies, as well as greater liberalisation of trade between them.

A number of Japanese automotive manufacturers have already started using Laos to manufacture labour-intensive parts, which are then imported to Thailand for assembly and export. “Japanese investors will use the region for their manufacturing facilities, and they also see the region’s potential for market growth,” says Charl Kengchon, chief economist at the Thailand-based Kasikorn Research Centre.

Krungsri intends to provide corporate and retail services to both Japanese and local firms. The bank already has two branches in Laos, where it will soon open a joint venture in auto hire purchase and consumer finance.

The Krungsri network, with some 620 branches in Thailand, also allows BTMU to offer Japanese expatriates retail services. “If you are appointed to work in Thailand, you can just go to our parent company in Japan and ask for an application to open an account in Krungsri,” says Mr Goto. “The day you arrive in Thailand, you can go to a Krungsri branch and get your account number and apply for a credit and ATM card.” Krungsri ATMs have even started to offer instructions in Japanese, as well as Thai and English.   

Race to the top

MUFG is already offering a mix of retail and corporate services in the US market with its purchase of Union Bank of California, in which the group initially bought 70% in 1991 and now owns 100%. “We have been managing Union Bank for about 30 years, and we learned a lot,” says Mr Goto, who was previously general manager of the US holding division of BTMU and MUFG.

With this corporate/retail mix in Thailand, Mr Goto hopes to turn Krungsri into one of Thailand’s 'first tier' banks, edging closer to the top four – Bangkok Bank, Siam Commercial Bank, Krung Thai Bank and Kasikorn Bank.

Parson Singha, senior director for financial institutions at Fitch Ratings’ Bangkok office, says: “I think Krungsri’s goal is reasonable." The credit rating agency notes that with the integration of Krungsri and BTMU’s Bangkok branch later this year, consolidated assets will account for about 10% of the market, compared with Thailand’s fourth largest bank – Kasikorn – which has a market share of 13.6%.

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