'Synergy crucial to banks on M&A route'

Governor Prasarn Trairatvorakul said the implementation of the AEC next year meant that there would be more competition between commercial banks in the region.

While bigger banks with small limitations and larger funding would have more advantage, there is the question of whether the process of merging two banks can be beneficial without synergy, he said.

Three Malaysian banks – CIMB Group Holdings, RHB Capital and Malaysia Building Society – said last Thursday that they were in merger talks in preparation for the AEC with a view to creating a mega-bank that would rank among Southeast Asia’s top-five lenders by assets.

"A merger between two commercial banks and the [resulting] larger size of funds might not be as beneficial and as effective [as expected] if there is an overlap in terms of assets such as employees, branches and IT systems," he said.

"If there is no synergy and the merger’s assets are not sealed but overlap, the merging between two banks will be more wasteful and the desired effects will not be achieved," the governor added.

Prasarn said that at the international level, when two banks are merged, they would have to let go of some of their employees and forgo some of their branches, along with their IT system, in order to make the move more synergetic.

Any Thai commercial banks that are thinking of merging should consider whether they can afford such a move and whether it will be as beneficial as they expect, he cautioned.

He also said there were many types of banking growth, and "generic growth" was another type that many banks in Thailand had been practising successfully.

He cited the fact that the overall annual growth of commercial banks’ assets in recent years was 8-9 per cent, which was high.

Moreover, their average pay-out ratio of 30 per cent is not insignificant, while the remaining 70 per cent is retained earnings, which means that Thai banks are growing internally, he explained.

"Generic growth might be slower than [that from] mergers and acquisitions, but there is more control in term of asset quality, employee growth and large investment in IT systems and, even though growth through M&A is faster, there is no guarantee that the growth will be beneficial or that banks won’t be worse off because of it," he said.

The central-bank chief said the expected increase in competition from Asean banks as a result of the coming into effect of the AEC would not be more intense than what Thai banks had gone through in the past 10 years.

Competition from China, Japan and Singapore in the past was just as intense, if not more so, than expected future competition from Asean banks, he said.

"The AEC is not scary and, if the private sector and local banks’ administrators have vision and active thinking, the burden from increased competition will be lessened. The public sector’s duty is to facilitate development activities by removing any obstacles that need to be removed," he added.