Thailand's 15 banks, arguably the foundation of the country's dynamic free market system, are an accurate mirror of the balance of powers within the economy. The four largest banks, which account for 70% of all Thai banks' assets, represent four sectional interests: two of Thailand's most powerful business clans (the Sophonpanich family, which owns Bangkok Bank; and the Lamsam family - the Thai Farmers Bank); the Thai bureaucracy and state enterprises (state-owned Krung Thai Bank); and the monarchy (Siam Commercial Bank).
The Thai Military Bank (ranked sixth in terms of assets) is the financial arm of Thailand's armed forces, whose role in the economy has been waning in recent years. The remaining 10 banks represent various powerful families and business groups.
The local banking system has essentially been protected by the Bank of Thailand (BOT) and Ministry of Finance for the past 30 years through limiting licences to new groups, or foreign banks, seeking a slice of Thailand's booming economic pie. Currently, only 14 foreign banks have been granted a commercial bank branch licence in Thailand. This cosy financial oligarchy is expected to end this year, when authorities have promised to offer new bank licences to both local and foreign firms.
The finance ministry is expected to hand out five new banking licences to Thai investors before the end of this year. Soon after, it will approve seven new foreign bank branch licences - for one US, one European, three Japanese and two other Asian banks. The entry of new players in the market marks a pivotal point for Thailand's long-pampered financial system.
Gradual opening
Thailand's monetary and financial authorities have been preparing for this period over more than a decade of gradual liberalisation that began in the early 1980s with the lifting of fixed ceilings on deposit and lending rates. Using a classic carrot and stick approach, the BOT has been slowly allowing the banks to move into new services, such as mutual fund management and debt underwriting, while paving the way for more competition. In 1993, the finance ministry handed out 47 offshore banking licences to established banks and 20 new players.
Granting Bangkok International Banking Facilities (BIBF) offshore licences fitted in well with the BOT's dual purpose of turning Bangkok into a financial hub for the sub-region around Thailand and laying down a condition for granting new foreign bank licences. Only holders of BIBFs are eligible for the new foreign bank branch licences, provided they have been active in offshore lending.
Financial liberalisation has been a continuous, if somewhat slow, process, despite Thailand's volatile political scene. Even the image-tainted cabinet of the current prime minister, Banharn Silpha-archa, hasn't dared to tamper with the financial masterplan laid down by former finance minister Tarrin Nimmanahaeminda, a respected banker turned politician under the administration of former premier Chuan Leekpai.
'The liberalisation is still on,' says Arnaud Guinard, the World Bank's chief of mission in Bangkok. He notes: 'There's been a bit of a delay, but when this new administration came in, it reconfirmed the masterplan and didn't change it, which is a sign, in my view, that despite various regimes or administrations there is a certain continuity [in Thailand] on the macro side, which is quite extraordinary.'
Opening the doors to more competition from new local and foreign banks (in keeping with Thailand's commitments to the World Trade Organisation) will force existing banks to improve their management systems and services, and encourage them to become bigger players abroad. Thai banks are already major players in the sub-region around Thailand, with eight branches or representative offices in Vietnam, four in Cambodia, six in Laos, five in Myanmar and eight in China.
Thai banks abroad will need to become pioneers and guides for both Thai and Association of Southeast Asian Nations investments in the sub-region, a role that Bangkok Bank has already assumed. 'Now the concentration is on investment,' says Pisit Lee-ahtam, Bangkok Bank's executive vice-president for investment banking.
'We like to promote intra-regional trade and investment, so the Bangkok Bank branches in China are promoting companies from Singapore, Indonesia and Taiwan that would like to invest there. We are not just concentrating on Thai firms.'
Three trends in banking
'I think there will be three major trends for Thai banks in the future,' predicts Thirachai Phuvanat-naranubala, the BOT's director of financial institutions' super-vision and development department.
'First, locally the banks will be going downmarket and upcountry. The second trend will be the development of new businesses, because now the market mechanism is functioning more perfectly there will be new businesses related to treasury activities - such as the buying and selling of bonds. And finally, we are going to see Thai banks and finance companies going further abroad.'
In the new, tougher environment, Thailand's big banks - Bangkok Bank, Thai Farmers, Krung Thai and Siam Commercial - with their huge provincial branch networks and growing overseas branches, are expected to survive if they improve themselves fast enough. For the medium and smaller banks, survival will depend on merging with one another, one of Thailand's stronger finance firms, or a strategic alliance with a foreign company.