In 2010, shortly after he became governor of the Bank of Thailand (BOT), Prasarn Trairatvorakul called in the top executives of Thailand’s banks to discuss their future growth plans. “I told them they should look abroad,” Mr Prasarn recalls. “They told me it is difficult. We are smaller than our friends in Singapore and Malaysia.”
Since then, however, Thailand’s four largest banks – Bangkok Bank, Krung Thai, Siam Commercial Bank (SCB) and Kasikorn Bank – seem to have been following the governor’s advice. The big four, which account for some 58% of Thailand's banking system’s assets, have good reason to expand beyond the country's borders.
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Many Thai companies are doing the same thing. A recent study by ratings agency Standard & Poor's on the top 100 Association of South-East Asian Nations (Asean) companies found that between 2008 and the first quarter of 2014, 17 Thai firms accounted for about $21bn, or 40% of the $55bn-worth of acquisitions, reported during the period. And these were just acquisitions made by listed firms.
Crossing the border
Bangkok Bank, the largest lender in Thailand in terms of both assets and global reach – with 29 international branches and operations in 13 countries – has carved out the largest regional footprint. The bank will soon have branches in nine of Asean's member countries, with Brunei the only exception. Last year, it won one of only nine licences approved by Myanmar's central bank to set up a branch in the city of Yangon, which it expects to open in June this year. Recently, it also received permission to reopen a branch in the Cambodian capital of Phnom Penh.
Kasikorn Bank, ranked fourth in Thailand in terms of assets, opened a locally incorporated bank in the Laos capital of Vientiane last year – it closed its original branch there during the 1997 Asian crisis – and plans to eventually have five to six branches in the landlocked country. Krung Thai and SCB have also established branch networks, mainly in neighbouring countries. VinaSiam Bank, a Vietnamese-Thai joint venture with SCB, already has nine branches in Vietnam.
All four banks are focusing on servicing their Thai clients and clients’ partners as they expand their businesses abroad, especially in the so-called CLMV region – Cambodia, Laos, Myanmar and Vietnam – which Thailand sits at the centre of. “The main point in expanding overseas is to organically grow with your existing client base, because that really is the only way you can compete,” says Parson Singha, a banking sector analyst at the Bangkok office of international ratings agency Fitch Ratings.
Thai banks are not limiting their ambitions to their Thai clients, however. They are also targeting Chinese and Japanese clients that have operations in Thailand and who are trying to expand into the CLMV region. “There are some Chinese [telecoms] companies based here, and we are helping them to get in to difficult places such as Myanmar,” says Teeranun Srihong, president of Kasikorn Bank.
His bank is turning its branch in Shenzhen, in the Guangdong province in southern China, into a locally registered bank which will act as its Chinese headquarters. “We have almost 200 people there, and we are doing quite well by focusing on trade and investment flows between Thailand, Asean and China,” says Mr Teeranun. Kasikorn has become the top-ranking yuan settlement service provider among Thai banks.
International influence
The push abroad comes at a time when Thailand’s largest banks are marketing their fee-based services, expanding into wholesale activities that were formerly the domain of foreign banks. These services do not necessarily mean having an extensive branch network, but they do require getting close to the existing client base.
"At the moment, we are probably the most active Thai bank in helping Thai customers setting up businesses in Myanmar," says Arthid Nanthawithaya, CEO of SCB, which currently only has a representative office in Yangon. Mr Arthid, who worked at Standard Chartered Bank’s Thailand branch before joining SCB, brought investment banking expertise from the international lender to SCB, much to the local bank’s benefit.
“Our wholesale banking has expanded five times over the past five years,” says Mr Arthid. He adds that much of that growth has been at the expense of foreign banks. “I would say that 30% to 40% was [taken] from foreign banks, and the rest from local banks, actually from our own customer base who were using other banks as well,” he says.
Although there are only 14 fully fledged commercial banks in Thailand, there is a strong foreign presence. Nearly all of the country's smaller banks – those ranked between fifth and 14th in the country by assets – have strong strategic partners from abroad. For instance, Bank of Ayuthaya, known locally as Krungsri, was bought by Bank of Tokyo-Mitsubishi UFJ (BTMU) in December 2013. BTMU initially purchased a 72% stake in the bank, and then increased its share to 76.4% in January 2015, when its Bangkok branch was integrated into Krungsri.
As a result of the integration, Krungsri’s assets jumped from Bt1214bn ($37.26bn) on December 31, 2014, to Bt1648bn, or about 9.3% of Thailand’s market share. This makes it the fifth largest bank in Thailand, nipping at the heels of Kasikorn Bank, which has assets of Bt2389bn and a 14.5% market share.
Although Krungsri currently has only three overseas branches, one in Hong Kong and two in Laos, it can now tap into the massive global network of BTMU’s mother company, the Mitsubishi UFJ Financial Group, with its total assets of Japanese Y279.1bn ($2370bn) as of December 31, 2014. While Krungsri has no presence in Yangon, BTMU does, having won one of the coveted licences last year.
“Once the BTMU branch opens [within the first half of 2015], Krungsri will be able to partner with BMTU’s local presence to help customers expand and grow in Myanmar,” says Noriaki Goto, Krungsri's president and CEO.
Similarly, BTMU will benefit from Krungsri’s strong presence in Laos, where besides two bank branches in the Vientiane and Savannakhet provinces, it has set up the Krungsri Leasing Services Company, a joint venture with local financial services firm Unity Capital Company, to offer consumer finance products. BTMU plans to use Krungsri to serve a growing Japanese business community in the country, and advertises its Japanese connection on its logos at Lao branches.
Japan connection
The BTMU connection by no means guarantees that Krungsri will be able to monopolise Japanese-related corporate or retail banking in Thailand and its neighbours. Japan has a highly competitive banking system, and a number of Thai banks have positioned themselves to benefit from this.
Kasikorn Bank, for example, has partnered with 27 smaller, regional banks in Japan to assist their customers in setting up shop in Thailand. “For every 100 Japanese customers that invest in Thailand, about 30 to 40 become our customers through our regional network, because we are working closely with the Japanese banks,” says Mr Teeranun.
Kasikorn’s CEO, Bantoon Lamsam, a third-generation member of the family that started the bank, has spent much of his time over the past 10 years promoting Kasikorn’s 'connectivity' with banks in Japan and China, which are following their customers to south-east Asia. “The connectivity is happening,” says Mr Teeranun. “We are getting fees from advisory works, and sometimes we do profit-sharing with our network banks that introduce customers to us.”
Bangkok Bank and Kasikorn, the two Thai commercial banks that have traditionally been closest to Thailand’s powerful Sino-Thai business community, are arguably well positioned to benefit from the rise in fee-based services related to expanded trade and investment in the region. But looking abroad is not the only path of growth for the bigger Thai banks. Krung Thai Bank, Thailand’s second largest bank with assets of Bt2727bn, has made domestic expansion its first priority. “Compared with banks such as CIMB and MayBank we are quite small, so for me the priority is to get Krung Thai to be strong locally first,” says Krung Thai president and CEO Vorapak Tanyawong.
A change in thinking
Krung Thai, which is 55% government owned, remains something of an underperformer in Thailand’s banking scene. Although ranked second in the country in terms of assets, it is number four in terms of profits. Mr Vorapak, who worked at JPMorgan in Thailand and SCB before being appointed Krung Thai CEO in November 2012, has set the goal of tripling the bank’s profits within three years, with three conditions – there will be no capital increase, no increase to the bank's headcount and its workforce will stick to its existing eight-hour work day.
“The key challenge was for me to change the mindset and become a more performance-driven organisation,” says Mr Vorapak of the bank with 22,000 staff and 1200 branches nationwide. The former JPMorgan executive has put key performance indicators in place for individual staff, rather than teams, and adopted a performance-related promotion policy.
He is pushing to expand retail banking, especially in the provincial areas where the Krung Thai branch network accounts for 30% of the total, and increase lending to small and medium-sized enterprises. “By and large, we are at the bottom of the mountain,” says Mr Vorapak. “I think there is a chance for us to grow in everything.”
Krung Thai stands to gain from government spending on infrastructure, especially in offering capital market products, an activity the state-owned bank claims a lead in domestically. But earnings will depend on the ruling junta’s ability to kick off some of its huge infrastructure projects, such as a Bt350bn double-track rail link between Nong Khai province on the Lao-Thai border, and Mab Ta Phut port on Thailand’s eastern seaboard. “By the second quarter at the latest we need to see some of these projects materialise, otherwise sentiments will get worse,” says Mr Vorapak.
New territories
Foreign banks based in Thailand are also pinning their hopes on infrastructure spending across the train, road, digital and special economic zones projects that are aimed at improving 'connectivity' between Thailand and its neighbours.
“Infrastructure projects mean [that there might be a] need to bring in equipment, so that gives rise to trade opportunities, it gives rise to foreign exchange opportunities, to financing opportunities and all the projects, are long-term investment projects so you need expertise in project financing,” says Tan Siew Meng, CEO of HSBC Thailand. Ms Tan is not daunted that some of these projects are expected to be financed by the China Export Import Bank. “For us, we are the largest foreign bank in China, so it helps that we have people on the ground who know the officials,” she says.
HSBC, Thailand’s first commercial bank, has grown more selective about its activities in the country over the past few decades. For instance, it recently sold off its retail activities. “We are a niche player,” says Mr Tan. “The local banks are so huge, we have to pick the space we want to be in, and for us that’s the wholesale corporate space, because for us as a bank with a presence in more than 70 territories across the world, the network is where our strength is.”
In their pursuit of new avenues for growth, and in an already competitive environment, the top Thai banks are expected to continue to edge in to new territory that was once the preserve of the foreign banks, much as they have now moved into more capital market products, advisory services and investment finance in recent years.
“The wealth business is the next delta for SCB,” says the bank's CEO, Mr Arthid. “In fact, 60% to 70% of this money is now going to Singapore and Hong Kong. That’s something we’re looking at.” Of course, there are no winners without losers, he acknowledges. “For me, the Thai banking business is winner takes all. I think the top four or five banks will dominate the market more in terms of the resources they have, in terms of the franchise and in terms of the customer base,” he says.
The outlook for the Thai banks, at least the top-tier ones, is in fact, quite stable, according to analysts. “For the Thai banking sector there are challenges, there is a lot of competition, but at the same time it is still basically oligopolistic,” says Fitch bank analyst Mr Singha. “And all the big banks are very capable of having very sound profitability from their underlying operations.”
