Interview: Darren Buckley
How do you assess the short-term stability of the banking sector in Thailand?
DARREN BUCKLEY: The Thai banking system is in a relatively good position overall given global economic conditions. The sector is well regulated by the Bank of Thailand, and domestic banks have strong balance sheets, sufficient levels of capital and are fairly liquid, as is the country in general. Looking at the national economy overall, the pullback in consumer confidence seen during the recent economic slowdown is indicative of the fact that high household debt levels have translated into increases in the cost of credit. The 2012-13 period was the most benign credit environment seen in many years, so it is not surprising to see some pickup in credit costs over the current cycle, and consumption – while healthy for growth in the long term – has to be balanced by higher income rates to be sustainable. We anticipate credit costs will peak around the first quarter of 2017. The 2016 GDP growth rate continues to be estimated at around 3.5% and projections for next year are slightly higher, assuming current progress is maintained.
There is the idea that growth is more reliant on fiscal stimulus, infrastructure spending and tourism than agriculture, exports and manufacturing. Thailand would certainly like to see more export activity, but exports are relatively soft, which is a challenge. Even exports within ASEAN – a growing segment – are eventually purchased by traditional markets like the US, the EU and China; therefore, export trends rely heavily on the performance of those economies. All things considered, the majority of indicators are picking up, and the banking sector is benefitting as a result.
In what ways are sector players putting into practice long-term digitisation plans?
BUCKLEY: The government has clearly made digitisation a national priority, and the banking and financial services sectors are certainly addressing this in the way they approach digital processes, digital access and cybersecurity, while also trying to achieve a balance between the provision of digital services and optimisation of their physical branch networks.
The sector is facilitating digital process and payment networks that enable customers to use mobile devices and other means to conduct banking activity. In moving forward with this, the crucial challenge that is being addressed by the relevant regulators and authorities is to prepare the legal framework needed for digital processes to play a fundamental role in the way the country operates. A particularly progressive regulatory shift is currently taking place with regard to financial technology (fintech), with the relevant bodies setting up a “sandbox approach” to pave the way for banks and fintech companies to fast-track innovation while ensuring appropriate testing is carried out.
To what extent is foreign investment in the sector shifting eastward as major entities in Asia-Pacific make significant investments into Thailand?
BUCKLEY: Japanese banks are certainly looking to diversify out of their domestic market, and as the nation is the largest foreign investor in Thailand, there is a natural client base. Thailand is seen as a strategic location warranting significant investment and an opportunity to diversify in pursuing growth. We should also expect to see Chinese banks growing their presence. What will be interesting to observe is whether ASEAN banks broaden their reach across the region as part of the ASEAN Banking Integration Framework, and if that is compatible with their business models for growth. Meanwhile, the positions of North American and European banks in the market are often indicative of their own internal challenges, as these regions look to optimise their use of capital in navigating more stringent regulatory requirements, necessitating scalable growth opportunities. We think that as well as being a vital market, Thailand is attractive to banks looking to expand their presence and will be a leader in ASEAN.
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