The University of Hong Kong
School of Economics and Finance
FINA0501 Asian Financial Institutions
Overview of Thailand’s Financial Institutions
Lo Ka Yiu, Timothy BBA(Law) II
U. No.: 2003506031 Overview of Thailand’s Financial Institutions (Banking Sector) Submitted by Lo Ka Yiu (2003506031)
With the glorious history of achieving an average GDP growth of 11.5% from 1987 to 1996, Thailand was acclaimed as one of Asia’s Tigers in the 1990s (Deepak, 1997). However, ironically, this is the same country which suffered a sharp depreciation of its currency, bath, and the ensuing economic downturn in the 1997 Asian Financial Crisis. Poor supervision over financial institutions, especially commercial banks, has been generally regarded as a key reason for Thai economy’s rapid collapse (Vatikiotis, 1998). Therefore, Thailand’s financial institutions, which have been largely restructured by the authorities after the crisis, are a topic of value. This paper will take an overview of Thai financial institutions, with a focus on the banking sector.
Thai banking system dates back to 1888 when the Hong Kong and Shanghai Banking Corporation established its branches there. Subsequently, the Chartered Bank in 1894, and a French bank called Banque de I’ Indochine in 1897 also established branches in Thailand. These banks share the same purpose of facilitating trading between their home countries and Thailand (Blanchard, 1958). Chinese people of Thai nationality began the domestic banking industry in Thailand during the early 1900s. They saw opportunity in Thai banking industry because of the lack of law governing it. Although massive speculative pressures resulted in the failure of these early banks, new banks formed and adapted to avoid the mistake made by previous attempts (Blanchard, 1958). In the past, Thai banking and financial systems were traditionally controlled by a limited elite group of business from approximately ten families (Traisoral, 2000).
Overall framework of the Thai Financial Institutions
The current banking system in Thailand consists of the following components: a. A central bank, namely the Bank of Thailand (BOT)
b. 12 domestic and 18 foreign commercial banks
c. 27 international banking facilities (IBF)
d. 4 specialised banks, namely the Government Saving Bank (GSB), the Bank of Agriculture and Agricultural Cooperatives (BAAC), the Government Housing Bank (GSB) and the Export-Import Bank of Thailand (EXIM Bank) Note that there is an overlap between the commercial banks and IBFs. Among the 27 IBF licenses, 8 are currently held by domestic commercial banks, 15 by foreign commercial banks. Other financial institutions include credit foncier companies, financial companies and securities companies (Bank of Thailand, 2005). Central to the economic crisis during 1997 are the central bank and commercial banks. We will now explore these financial institutions in a more specific way.
1. The Central Bank
Thai National Banking Bureau, established in 1939, was the first organization assuming the responsibilities of a central bank in Thailand. It was a department attached to the Ministry of Finance. During the Second World War, the Thai government saw the success that other countries were experiencing from a strong central banking system. As a result, the Bureau was turned into a central bank, i.e. the Bank of Thailand, with the passing of the Bank of Thailand Act in 1942. The Bank of Thailand has been given many responsibilities, including the following: i) Formulate and recommend monetary policy to the Thai Government ii) Provide banking services to the government, state enterprises, and financial...
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