Overview of the Thai Banking Industry
To begin with, the overall structure of the Thai financial sector is mainly consisted of the Bank of Thailand (BOT), governed by the Ministry of Finance, whose duties are to maintain financial stability of the economic system and to supervise financial institutions – commercial banks, finance companies, credit foncier companies, and non-bank such as credit card and other non-collateralized loan activities. Other key regulators within the Thai financial realm are the Securities and Exchange Commission, the Ministry of Finance, The Office of Insurance Commission, and the Ministry of Agriculture and Cooperatives. However, the scope of this report would only include the banking sector.
History and Past Legislation of the Thai Banking Industry
The Thai banking industry went through a financial liberalization in the early 1990s by accepting the International Monetary Fund’s Articles of Agreement along with deregulating measures in the financial system. In order to correspond with the worldwide financial trend and to support the rapid growth of the Thai economy, in 1993, the Thai government has established the Bangkok International Banking Facility (BIBF) to facilitate the flow of foreign capital into Thailand.
However, the Asian financial crisis in 1997 caused a deep impact on the Thai financial system as foreign investors had withdrawn their investments out of Thailand, which resulted in the devaluation of the Thai Baht and the sharp increase in the non-performing loans (NPLs) in the banking industry caused by the convenient access to capital both overseas (foreign currency nominated debt) and domestic (Thai Baht nominated debt). Consequently, the BOT has been taking cautious steps in terms of controlling the movement of capital in and out of the country, and setting monetary policies.
Several years after the Asian financial turmoil that took place in 1997, the Thai banking sector witnessed the first growth in 2002 due to the expansion of credits to the private sector under stricter supervision from both the commercial and the state-owned banks. As of 1997, 2002 and 2008, the sizes of the total liquid assets in the Thai banking sector were 471.7 billion Baht, 1.43 trillion Baht, and 1.58 trillion Baht respectively. While the total liquid assets of the Thai banking industry had been on an incline, the ratio of the total liquid assets of the domestic to foreign banks were 2.8 times in 1997, 22.3 times in 2002, and 5.99 times in 2008. The reason behind the tremendous increase in 2002 was the sharp reduction in deposits and eligible securities on the foreign banks’ side contrast to the spike of those items for the domestic banks. In 2008, the market shares for deposit between domestic and foreign banks in Thailand were 91.43 percent and 8.57 percent respectively.
To rationalize the disproportionate ratio of deposits, most Thai citizen prefer to bank with the local financial institutions than putting their money with the foreign banks. The reason is straightforward in this case as certain local banks, i.e. Siam Commercial Bank, Thai Farmers Bank, and Bangkok Bank, have established long-lasting relationships with and have ensured safety of deposits to their customers and the general public, and to deposit money in local banks means to support Thai businesses. Nevertheless, these Thai banks are still developing and creating new services and improving processes in order to keep pace with competition from overseas banks.
Major Thai Banks and Shareholder structures
Within the industry, there are seven major local banks, which are competing for businesses. Among them are Bangkok Bank PCL (Public Company Limited); Krung Thai Bank PCL; Kasikornbank PCL; Siam Commercial Bank PCL; Bank of Ayudhya PCL; Thai Military Bank (TMB) PCL; and Siam City Bank PCL accordingly regarding to the total number of branches throughout the country.