Interview: Frank Krings
Foreign banks with Thai branches account for 15% of commercial banks’ assets. What limits these banks from achieving a greater market share?
FRANK KRINGS: When looking at the retail and small and medium-size enterprise (SME) side, I would not anticipate foreign banks to make significant organic inroads, since capacity-wise the market is well banked already and most of private sector institutions make decent returns. This is an enviable position when compared to certain developed markets, where commercial banks struggle with profitability. Also, the level of investment required for the creation of adequate operational scale remains a limiting factor for broader international representation on the retail and SME side. There is ample domestic liquidity in the banking system, which is a sign of strength and gives domestic commercial banks a competitive advantage when it comes to interest rates and lending capacity. Since domestic credit remains an anchor product of many commercial bank relationships, we expect that beyond relevant merger and acquisition activity changes in the competitive landscape would be gradual. This occurs, for instance, when client activity moves from domestic to cross-border, or where supply chains become complex and integrated. This is where international banks win market share because many Thai banks lack certain capabilities or expertise. Outside of Asia, only one or two Thai banks cater to international needs in a relevant way. Lastly, the regulatory framework does not currently enable international banks to simultaneously have a parent branch and a locally incorporated entity. Hence, being the branch of an institution like Deutsche Bank (DB) with a proven international, cross-border and in-country business model is helpful for certain transactions and activities, but may also be limiting in other areas.
Where do you see the greatest opportunities for international banks to increase market share?
KRINGS: For members of the AIB, cross-border intermediation, advice and services have the greatest growth potential. As the local market share of non-Thai companies rises and new international corporations and investors enter the Thai market, it is international banks like DB that are well equipped to support such endeavours. Equally, we would see relative market share gains in the context of Thai firms and investors looking globally and, hence, the domestic market participants becoming more international.
So far, Thailand is a market flush with domestic liquidity, corporate cash-flows have been healthy, and the Bank of Thailand, ever since the Asian financial crisis, has maintained prudent regulation and managed the stability of the banking system well. Thai companies are thus continuing their international expansion. As the domestic economy internationalises and more Thai corporations and investors move into the global market, there will be a greater need for international expertise. Lastly, what could lead to further step-functions in market share of international banks would be the ability of non-Thai banks to acquire controlling stakes in domestic banks, which previously has not been trivial.
It may be desirable to see a review of some of the policies pertaining to foreign ownership and single-presence rules in order to boost sector competitiveness.
How would you respond to assertions that Thailand is over-banked and requires more consolidation?
KRINGS: If a country is over-banked, one would expect depressed profitability. This is not a reality in Thailand, today. Conversely, some argue there should be even more competition. The new licensing framework for foreign commercial banks under the Financial Sector Master Plan underscores this view. When it comes to domestic retail and SME banking, though, more players are unlikely, as there are several banks that already operate nationwide. Yet, there are structural elements in the domestic sector that make local banking transactions expensive for the client. The sector is underinvested in technology and there is a productivity gap. It would actually be desirable to see more healthy competition.
You have reached the limit of premium articles you can view for free.
Choose from the options below to purchase print or digital editions of our Reports. You can also purchase a website subscription giving you unlimited access to all of our Reports online for 12 months.
If you have already purchased this Report or have a website subscription, please login to continue.