Interview: Noriaki Goto
What factors make Thailand’s banking sector a desirable destination for foreign investment?
NORIAKI GOTO: Encouraging increased rates of foreign participation is a growing objective for Thailand, as the country aims to make the domestic banking industry more competitive. While already a bank-based economy, Thailand still has relatively low banking product penetration as compared to other large economies. The country is taking steps to tighten risk management and compliance, as well as to encourage information technology solutions in line with global banking standards.
Untapped potential still exists for certain unbanked and under-banked segments, and there are plenty of avenues for financial institutions to provide more wealth management products to existing customers and boost cross-selling activities.
Thailand also serves as a strong platform for large Asian banking groups looking to expand their footprint further into the fast growing and, very much nascent when it comes to their banking industries, Greater Mekong region. Thailand not only sits in the centre of this emerging economic zone geographically, but its banking system is more developed than in neighbouring countries, thus establishing Thailand as a strong launch pad to entering these more frontier markets.
In which product categories and segments do you see opportunities for growth?
NORIAKI: We expect competition for deposits to remain strong amongst retail banks, with loan books continuing to grow within the context of an already high loan-to-deposit ratio. However, deposit growth should continue at a more gradual rate than in the past few years due an environment of slowing investments. Slower consumption growth will also lead to lower demand for loans.
Furthermore, system liquidity and volatility could be impacted by external factors such as changes to the US Federal Reserve’s tapering and quantitative easing policy, combined with local factors such as the continued delay of government spending on major infrastructure projects.
Going forward, Thailand is likely to focus its efforts on maintaining a healthy position in terms of consumer lending, as well as leveraging the corporate and small and medium-sized enterprise segments as growth drivers. At the same time, increasing penetration of the underbanked segment, in order to help building a solid and stable deposit base at optimal cost, will also be important areas.
Meanwhile, expanding the Thai banking presence and lending role in rapidly developing economies is also expected to continue, particularly as a number of large energy projects require debt financing.
To what extent is rising aggregate household debt a concern, and could this lead to systemic risk?
NORIAKI: Under the current context of a slowing economy and rising household debt, banks must remain vigilant in monitoring and managing accounts to prevent potential deterioration. Banks must also strengthen their underwriting criteria, as well as their collection efforts. We are seeing an uptick in default rates in our consumer portfolio, particularly for the used car segments. This deterioration of asset quality has mirrored the wider industry trend.
That said, I do not see any systemic issues. Since the Asian financial crisis of 1997-98, Thai banks have strengthened not only their financial position but also their risk management and corporate governance. In addition, the Bank of Thailand has played an important role with its prudential regulation and regulatory foresight in keeping the banking sector stable. It is up to us as banks to continue employing a combination of tightened underwriting standards, vigilant monitoring and management of accounts, and active collection efforts. These are measures which we must take in order to maintain our asset quality.
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