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WorldApril 1 2015

Thailand’s CBG seeks greater banking depth and breadth

The governor of the Bank of Thailand, Prasarn Trairatvorakul, has seen the country's banking sector show remarkable resilience over the past few years. However, he is now looking for its lenders to expand their services into neighbouring countries, as well as offer more sophisticated products at home.
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Thailand’s CBG seeks greater banking depth and breadth

Dr Prasarn Trairatvorakul, the Bank of Thailand governor since October 2010, has helped to keep the country’s economy stable and growing during the past five years of political volatility, including a military coup in 2014.

While acknowledging it would be unrealistic to claim the coup has had “zero effect” on the Thai economy, which grew only 0.7% last year, Mr Trairatvorakul predicts 4% economic growth in the country this year and few problems for its banks and corporate giants, which have learned their lessons from the Asian financial crisis of 1997.

The governor, who is scheduled to retire in September, says there is still room for Thai banks to grow in “breadth”, through such measures as expanding services to neighbouring countries, and in “depth” by offering more sophisticated services and tapping Thailand’s small and medium-sized enterprises (SMEs).

Q. Has Thailand suffered some opportunity losses because of last year’s coup; for instance, in missing out on new foreign direct investment?

A. It would be [incorrect] to say there has been zero effect, but whether Thailand still has attractions... yes, I think so; the location, the basic foundations such as infrastructure and so on. But we have to be realistic that we are also limited by our own resources, such as labour, in terms of quality and pricing. In terms of competing with other countries, we want to be more selective. We want high-value-added industries. That’s the challenge. 

Q. Over the past three to four years, Thai companies have been investing heavily abroad, especially in the Asia-Pacific region. With private debt
 in Thailand estimated at 154% of gross domestic product, are you worried about the high leverage rate of companies and the exposure of the country's banks?

A. It is not a worry. What is more meaningful is comparing debt to equity. In the pre-1997 crisis period, the average debt-to-equity ratio of the corporate sector in Thailand was above five times. At present, it is 1.4 times and the median is 0.8 times. Everyone learned their lesson from that crisis. I think it was a blessing in disguise. At that time, people were overly optimistic. Now they are more realistic.

The total Thai banking system [now] obtains only 5% of its total funding abroad. In other words, banks’ foreign debt exposure is only 5% and that is mostly for clients overseas. So in terms of stability, it is no threat.

Q. Thailand’s top four banks by Tier 1 capital – Bangkok Bank, Siam Commercial, Krung Thai and Kasikornbank – control an estimated 58% of the market. Would the Bank of Thailand like to see a more balanced picture?

A. We now have 14 fully fledged banks and year by year we try to inject competition, not so much in terms of numbers but in terms of allowing them to have good strategic partners, such as letting the Bank of Tokyo-Mitsubishi UFJ come in to purchase Bank of Ayudhya in 2013.

The big four Thai banks have tried very hard to improve themselves. They have expanded a lot into consumer banking, equipment and so on. For the Bank of Thailand, we are quite satisfied with their improvements, but whether we are satisfied that this [provides an] efficient system to customers and the general public, we still have some doubts. I think they can do more. Perhaps they could squeeze their profit margin a bit.

Q. Where do you see the growth for the banking system in Thailand?

A. In breadth and depth. With breadth, you can probably do something on urbanisation, which is linked with the integration of the Greater Mekong subregion [the six states of the Mekong River basin: Cambodia, Laos, Myanmar, Thailand, Vietnam and Yunnan Province, China]. In the past two years, the big four have allocated their best people on this strategy of looking outwards, so they have adjusted themselves to this breadth.

With depth, I think there are opportunities for our banking system, if you look at the more advanced activities such as risk management, advisory services, capital market activities, information and research. The problem [for Thailand's banks] is that they will [increasingly] run into competition with the big [banks] in the world.

Q. The Association of South-east Asian Nations [Asean] Economic Community will be implemented within the next 12 months. Will this impact Thailand’s banking system?

A. There will not be any big impact, because we are already open. CIMB from Malaysia is here. United Overseas Bank of Singapore is here, so inbound you may see the presence of some new Asean banks, but it depends on reciprocal negotiations. The challenge is in how much the Thai banks can capture the opportunities.

Q. Connectivity is a key element of your financial masterplan, to be announced later this year. What does it mean?

A. Connectivity means you go out in breadth. You connect with the countryside, you connect with your neighbouring countries, you connect with the people in the region, you connect with CLMV [Cambodia, Laos, Myanmar, Vietnam] countries. CLMV accounts for 9% of our total international trade already. That’s equal to the European market.

Q. Could Thai banks do more to help SMEs, especially in their ventures abroad?

A. There are 2.9 million registered companies in this country and only 900,000 have access to banking services. The remaining 2 million registered companies are not banking clients, so that’s 2 million you could do something for.

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Read more about:  Asia-Pacific , Thailand