As Thailand loses some of its allure, Japan’s big banks are following their corporates into Cambodia, Laos, Myanmar and Vietnam, using their Thai subsidiaries as strategic partners. Peter Janssen reports.

Union Financial Centre, Yangon embedded

The Union Financial Center in downtown Yangon, Myanmar, is now rivalling the city's Sakura Tower (where rents soar at Manhattan levels) as the place to be for banks. The newly built office block – which offers an impressive view of the derelict colonial era British Secretariat across the street – is home to regional banking giants such as ANZ and OCBC, local banks Myawaddy Bank and CB Bank, and a host of representative banks.

One of these representative offices belongs to Krungsri, a Thai bank that was bought out by Japan’s Bank of Tokyo-Mitsubishi UFJ (BTMU) and Mitsubishi UFJ Financial Group (MUFG) in late 2013. With its parent also located in Yangon, some may wonder why Krungsri Bank needs a representative office. However, there is a strategy at work here.

Strategic neighbours

Two full-time Thai employees work under the Krungsri flag in Yangon, a chief representative and a ‘secondee’ who works at the BTMU/MUFG branch. “The role of the chief representative is to assist and facilitate Thai companies who are interested in exploring business opportunities in Myanmar,” says Masaaki Suzuki, head of Japanese corporations and multi-national corporations banking at Krungsri Bank, Thailand headquarters. “Once the transactions become more concrete, with the customers’ consent, the chief representative would then collaborate with the secondee and refer the customer to BTMU/MUFG Yangon branch for potential credit/banking opportunities.”

If the Thai customer meets MUFG’s loan requirements, the Japanese bank can also provide them with retail banking services (such as ATM cards and payroll services) via local partner bank CB Bank. “All three parties [Krungsri, MUFG and CB Bank] are strategically located in the same building,” says Mr Suzuki.

Following corporate clients to new frontiers has long been part of the Japanese banking business, at least for the three megabanks MUFG, Sumitomo Mitsui Banking Corp (SMBC) and Mizuho Bank. As Japanese corporates tentatively start to invest in the last few south-east Asian frontiers – Cambodia, Laos, Myanmar and Vietnam (CLMV) – these big banks are following. All three banks have branches in Thailand, an emerging financial hub for the CLMV region, and all three have now been awarded licences to operate bank branches in Myanmar, as they do in Ho Chi Minh City, Vietnam’s manufacturing base.

Thailand is a well-established hub for Japanese companies, with more than 2500 registered in the country and accounting for more than half of its manufacturing production and exports. But Thailand’s once robust economy has been slowing over the past three years, and exports are sputtering. A devastating flood in 2011 swamped at least six industrial estates in central Thailand and interrupted global manufacturing chains in the automotive and electronics sectors, raising questions about the country’s future capabilities. Then there has been the political unrest, with two coups in the past decade, in 2006 and 2014.

Looking outside Thailand

Both Thai and Japanese firms have started looking abroad, especially to the CLMV countries, for growth opportunities. Thai companies have been investing heavily overseas for the past five years, with the trend peaking in 2012 when net outflows of foreign direct investment (FDI) reached $13bn, surpassing net FDI inflows of $12.8bn for the first time in FDI-dependent Thailand. A lot of Thailand’s outward direct investment is heading for CLMV countries. 

 “We are also seeing our Japanese corporate customers trying to make investments outside Thailand, or Thailand plus one,” says Noriaki Goto, president and CEO of Krungsri. “They are starting to put their money in countries where they didn’t invest in previously.” Japanese FDI in the CLMV region remains small to date, but it is growing as these countries improve their infrastructure and push economic growth to create domestic buying power.

Since the launch of the first phase of the Thilawa Special Economic Zone (SEZ) in Yangon in 2015, 24 out of the 61 applicants for factory land were Japanese firms. MUFG has set up a desk at a branch recently established by its Myanmar strategic partner, CB Bank, in the SEZ. CB offers retail services to Japanese customers in the zone while MUFG offers special financial services such as insurance to corporate customers.

For the big three, it is partly about chasing their Japanese customers. But for MUFG it imore than that. Through its Krungsri affiliate, the bank is also pursuing Thai corporate customers as well as looking for avenues to enter consumer banking in Myanmar. “Japanese banks were always just doing the wholesale corporate banking. It was considered a dream that you would do not only wholesale corporate banking but also have a retail banking arm,” says Mr Goto.

Move into Laos

Unlike Mizuho and SMBC, MUFG has an aggressive retail banking arm via its Krungsri connection in Bangkok. The bank is Thailand’s fifth largest, and a leader in sectors such as automobile hire purchase. While MUFG has not entered Laos, Krungsri has. Besides boasting two branches in the landlocked country, the bank has launched Krungsri Leasing Services to engage in the auto hire purchase market in Laos. In Cambodia, where Krungsri also has a branch, it is in the process of acquiring a 100% stake in Hattha Kaksekar, the fourth largest microfinance institution in the country.    

While the other big Japanese banks have not yet followed MUFG’s lead into the region’s retail banking, the Aeon financial services group has. Starting out in the mall and department store business in Japan, retail corporate group Aeon branched out into consumer loans, hire purchase and credit cards, and eventually set up Aeon Bank in 2006. In the early 1990s it started to pioneer markets in south-east Asia by opening up Aeon Thana Sinsap in 1992, which is now one of the largest non-bank consumer finance companies Thailand. It accounts for 11% of all personal loans and 7% of the credit card business in Thailand, according to Fitch Ratings, and has 120 branches and more than 17,000 dealers nationwide.

Aeon Thana Sinsap has been expanding its consumer finance operations to Thailand’s neighbours since 2008, when it opened branches in Ho Chi Minh, Hanoi, Danang and Kanto. It started operations in Cambodia in 2011, first under a microfinance licence but later as Aeon Specialised Bank, which launched its credit card business in January. Aeon Microfinance (in Myanmar) was incorporated in 2012 and Aeon Leasing Service (in Laos) kicked off in January 2013. Aeon Thana Sinsap estimated its total sales revenues in the CLMV countries at Bt1.7bn ($47.8m) in 2015, with profits of Bt352m, compared with Aeon Thana Sinsap’s overall revenues of Bt17.4bn and net profits of Bt2.4bn.

“Surprisingly, the non-performing loans [NPLs] in Myanmar and Cambodia are much lower than in Thailand,” says Kazumasa Oshima, vice-president of Aeon Thana Sinsap. “Many people tend to look at GDP per capita, but we are looking more at customers one by one,” he adds of Aeon Thana Sinsap’s risk management strategy.

It helps in countries such as Cambodia and Myanmar that there is less competition from other financiers, other than loan sharks, and that consumerism is still something new. “For someone in Myanmar or Cambodia who wants to buy their first mobile phone or first motorcycle, it is precious to them and important [to] repay all the debt in order to get the asset. They care about their credit history,” says Mr Oshima. Meanwhile, in more developed Thailand, Aeon Thana Sinsap’s NPLs have reached 3.5% in 2016.

Strategic partnerships

Thai banks are also playing a role in helping smaller Japanese banks follow their corporate customers both in Thailand and into CLMV countries. Kasikorn Bank has been forming strategic partnerships with Japan’s so-called prefecture banks since 2006 and now has 29 Japanese lenders working out of its headquarters in Bangkok. Bangkok Bank, Thailand’s largest, has relationships with 22 Japanese lenders.

“Maybe 15 years ago [these lenders] did not see that it was necessary to follow their customers so this was just the beginning of a trend, but now it is relevant because 50% of the revenues of their customers come from their overseas operations,” says Pipit Aneaknithi, vice-president, world business division, at Kasikorn Bank. Kasikorn also helps Japan’s prefecture banks follow their corporate clients to CLMV countries. “We would like to raise the bar of regional integration in the banking sector to make sure we can serve our clients who go abroad smoothly,” adds Mr Aneaknithi.


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