Economy of scale crucial for Thai banks
Thai banks should consider creating sufficient economy of scale before expanding into Asean markets because their ability to facilitate offshore activities is lower than that of rival banks in Singapore and Malaysia.
Asean is an important market for Thai companies, some of which could become top players in the region, Vorapak Tanyawong, president of Krungthai Bank, said yesterday at the Cornell Forum on the competitive challenges in the financial banking industry for Thailand and Asean.
The role of Thai banks is to follow the activities of Thai companies, yet, the size of Thai banks that can potentially operate outside Thailand amounts to assets of US$70 billion-$80 billion at present. This is much lower than Malaysian CIMB Group’s $120 billion (Bt3.930 trillion) or Singaporean United Overseas Bank’s $300 billion.
“What Thai major banks should do is have a greater economy of scale. In my personal view, a Thai bank that opens an overseas branch is unable to compete with other regional banks, so we might consider the model of consolidating to be an Asean bank,” said Vorapak, who worked as an executive at several foreign banks before becoming the head of the state-owned bank.
To close the gap between competing regional banks, the Thai Bankers’ Association is collaborating with Qualified Asean Bank on a bilateral agreement.
“In the case of Malaysian banks that have approvals to open branches in Thailand, Thai banks should be allowed to open branches in Malaysia as well. This cooperation is just a beginning so we should follow this development in the future,” he said.
He said the barrier for Thai banks in competing with other [regional] banks is culture and language.
Thai banks should change their internal culture to international standards, such as communication in English, he explained.
He said Thai banks are well positioned in retail banking and SME banking but there is a gap area in wholesale banking, while regional banks have exposure in this field.
Another challenge for Thai banks is limitation in human resources. When the financial sector is liberalised, this industry will face a shortage of talented people, especially in the area of digital banking and data, he said.
In the context of Asean, Thai banks should speed up risk management and maintain the standard of service to carry on in a competitive way.
Vorapak added that the 1997 financial crisis was a good lesson for Thai banks in diversifying their penetration from corporates to SMEs and retail customers.
The banking sector in Thailand has shifted from loan-based to capital-based, which helps Thai companies with various sources of funds.
However, what Thai banks should further develop is fixed income products, he said.
