Interview: Matthew Lobner
What have been the direct and indirect impacts of the late-2011 floods on the Thai banking system?
MATTHEW LOBNER: The 2011 floods wreaked havoc on three areas of business: manufacturing, suppliers and infrastructure. Despite the setbacks, corporations did a good job in collaborating to address the challenges. Huge efforts are being made to recover from the losses, and we will see productivity ramp up as replacement machinery arrives. Still, it will take time to order, ship, and install the replacement equipment.
Many new trade networks are cropping up for the purpose of ordering and distributing the machinery. This is influencing foreign exchange activity because many of the transactions on the trade side are made in US dollars. Immediately after the crisis, trade volumes were significantly down, so it was no surprise when GDP came out flat in 2011 because it did not reflect the underlying trade businesses. Each month the GDP has been progressively getting back to normal, and this is driven in part by equipment purchases and decisions to reinvest. Most of our customers are continuing to rebuild in Thailand since many firms have established their supply chains here and it is difficult to move a company’s main manufacturing site to a different location.
Regarding non-performing loans (NPL), HSBC hasn’t seen any deterioration in our books, because we don’t play in the smaller space and because most of our corporate clients have flood and contingency insurance. This is not to say that the banks with a presence in the small and medium-sized enterprise market aren’t being affected, but I believe there is enough liquidity in the Thai banking sector to deal with the consequences.
Beyond the effects that flood recovery will have on credit and growth in 2012, internationalisation will also spur expansion. Thai corporations are increasingly looking abroad, including companies such as Thai Union Frozen (TUF), Indorama, Central Group and Minor Group. And as the government gets the flood insurance and similar issues sorted, the kingdom will be an increasingly attractive place for multinationals to operate.
How will the move towards the ASEAN Economic Community (AEC) in 2015 influence foreign and local bank activity in the region?
LOBNER: There is room for both Thai and foreign banks to finance corporations’ expansion abroad. Most larger enterprises will need capital from a number of financial institutions. Local banks have a lot of liquidity to provide, given that they have a large deposit base and solid relationships with these clients. Meanwhile, international banks have a different product suite and can provide connectivity to the target markets as well as knowledge on operating in those environments. It is a win-win situation in that Thai companies expanding abroad will have opportunities to work in concert with both local and foreign banks.
As the AEC develops, regional banks will follow their clients, making it easier for corporations to operate regionally, and therefore easier for banks as well. However, large Thai corporations are not just operating in ASEAN. TUF is a great example – it operates in the US, France and the UK; it is not limiting itself to ASEAN. Regional banks may be able to support regional connectivity, but research and client activity shows that expansion is becoming less bounded by these different unions or cooperatives, and this is where foreign banks become especially crucial.
What will be the response to significant Thai bond issues by the government in 2012?
LOBNER: With clear domestic and offshore investor appetite for Thailand, HSBC issued the first-ever Asian inflation-linked bond in 2011, a BT40bn ($1.27bn) issue. The Public Debt Management Office has done a great job in offering debt that fits the needs of investors. There are various tenors out there, including 50-year bonds, inflation-linked bonds and so forth. Sovereign risk is low in terms of overall rating, and I am hopeful that these will be able to tap into the bond market as successfully as they have in recent years. Bond issuances are crucial given the infrastructure spending that is planned.
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