Fitch: regional lenders' participation in Thai banking industry is growing

If successful, the acquisition would increase foreign banks’ share of total commercial bank assets in Thailand to 26 per cent from 18 per cent. It would also result in Bank of Ayudhya (BAY) being the largest foreign-owned bank or the fifth-largest commercial bank in Thailand.
It would also be the first time that the 49-per-cent foreign ownership limit is waived for an acquisition that is not related to financial rehabilitation of the acquired bank or the liquidation of bank shares owned by the government.
BAY is a profitable bank and the share purchase will be from private shareholders. Fitch believes this lenient attitude may be because Japan has been the largest foreign direct investor in Thailand, contributing 30-40 per cent of total foreign direct investment in Thailand each year from 2001-12.
The Bank of Thailand recently announced that it will issue up to five foreign commercial bank subsidiary licences, which allow up to 20 branches and 20 ATMs. This will provide a wider scope for activity than that allowed under a foreign bank branch licence but short of a full banking licence.
Fitch expects that potential applicants are likely to be Asian banks that are new entrants to Thailand. In 2011 the central bank allowed an upgrade of existing foreign bank branches to foreign bank subsidiaries with up to 20 branches and ATMs. However, since then, no foreign branches have been upgraded.
Another Thai bank that is an acquisition target is TMB Bank, the seventh largest, as major shareholders ING Bank at 30 per cent and the Finance Ministry at 26 per cent look to sell their stakes.
Asian banks are reportedly expressing an interest. Acquisition from both shareholders would result in TMB becoming another foreign-owned bank, with at least more than 50 per cent owned by foreign institutions.
Almost all foreign-owned banks in Thailand are owned by Asian banks, in keeping with their regional expansion strategies and the growth opportunities that will be brought by the Asean Economic Community in 2015.
BTMU’s proposed acquisition of BAY is part of its expansion in the Greater Mekong Sub-region (GMS), comprising six countries including Thailand, with a combined population of 323 million and 1.2 per cent of world GDP in 2011.

BTMU
Fitch does not believe the entry of BTMU as the fifth-largest bank will affect the leading position of Thailand’s four largest banks in the short-to-medium term. BAY is the leader in retail lending, particularly in auto hire purchases and credit cards. Its wholesale segment may benefit from BTMU’s relationships with Japanese borrowers, but lending to Japanese clients is not a large part of the Thai bank’s loan portfolio.
Fitch also believes that BTMU and other foreign-owned banks could be more competitive than Thai banks in intra-regional business, where leading Thai banks have yet to establish a meaningful presence.
Bangkok Bank Plc (BBB+/Stable) has more regional networks than other major Thai peers, with a long-time presence in 11 countries across Asia.
Other large Thai banks’ regional expansion strategies are gradual and selective, mainly to support the trade and investment flows of Thai clients, and focus on GMS or China.
The long-term growth opportunity from increasing regional economic cooperation and integration may ultimately prompt leading Thai banks to focus more on regional expansion or to seek strategic partners.
There are 15 commercial banks in Thailand. Four of them are foreign-owned with the foreign ownership limit waived above 49 per cent when they acquired the Thai banks.
They are Standard Chartered Bank (Thai) (A-/Stable), United Overseas Bank (Thai) (A-/Stable), CIMB Thai (BBB/Stable) and Industrial and Commercial Bank of China (Thai) (AAA(tha)/Stable).
There are also 15 foreign bank branches, and one foreign bank under a foreign bank subsidiary licence.