Eight key risks for Thailand’s financial sector amid major AI shift

Thailand’s Financial Sector Navigates New Regulatory & Economic Headwinds

Focus on Risk: Navigating Changes in Thailand’s Financial System Post-BoT AI Initiative

Following a major initiative by the Bank of Thailand (BOT) to regulate the use of Artificial Intelligence (AI) and enhance efficiency across the financial sector, market operators must closely scrutinise the evolving structure to effectively mitigate risks. Forvis Mazars has highlighted eight potential areas of concern, advising financial institutions to closely monitor policy developments and adapt operations to ensure transparency, ethical standards, and overall readiness.

Tippawan Pumbansao, Financial Services Audit Partner of Forvis Mazars in Thailand, notes that the BOT's draft on AI risk management aims to create a more organised financial system. In response to this and other evolving factors, financial companies must remain vigilant regarding the following eight key risks:

1. AI Governance

New regulations surrounding AI require serious attention. Financial institutions must invest in tools and specialised personnel to meet regulatory expectations. Establishing dedicated operational structures is essential for effective risk management and to prevent future compliance errors.

2. OECD Global Minimum Tax (Pillar Two)

Designed to manage complex multinational taxation, this impacts large corporations, particularly those receiving Board of Investment (BOI) privileges. Companies must review their tax frameworks, balance sheet liability methods, and financial disclosure readiness. Compliance requires detailed reporting, active tax credit management, and maximising existing privileges.

3. Reducing Policy Interest Rate

The BOT has lowered the policy interest rate from 1.75% to 1.5%, the lowest in over two years, driven by disinflation, high household debt, sluggish tourism, and elevated US import tariffs. Amid political uncertainty, organisations should reassess asset valuations and fundraising strategies. They are advised to review stress test assumptions and prepare precautionary plans to address the direct and indirect impacts of lower interest rates.

4. Virtual Banks

This flexible, fully digital business model challenges traditional institutions, forcing them to increase digital platform usage to retain clients. Risk management frameworks should be experimental to handle intensified competition, and digital transformation must be strategically planned and executed.

5. Non-Performing Loans (NPLs)

In Q1 2025, NPLs in the banking system rose to 548 billion baht, primarily from housing and SME loans. Forvis Mazars advises strict credit risk calculations, adherence to credit allowance requirements, and robust bad debt provisioning aligned with the expected credit loss approach.

6. Cybersecurity

As digital transactions soar, potential threats escalate. Operators must scrutinise payment processes and develop cybersecurity threat models, supported by flexible contingency plans.

7. Digital Assets

This high-risk market now faces tightened regulations to combat money laundering (AML/KYC), covering digital asset custody and crypto risk assessments. Risk management frameworks must be thoroughly tested, covering client onboarding, tracking, and compliance reporting. Internal audit teams require specialised expertise to manage these risks effectively.

8. Creditworthiness Report (TFRS 17)

Under Thai Financial Reporting Standard 17 (TFRS 17) for Insurance Contracts, the 2025 tax year introduces new performance reporting requirements. Insurance companies face challenges in data completeness, system readiness, and reconciliation processes. Rigorous checks are essential to ensure compliance, particularly concerning earnings volatility, capital adequacy, and peer performance comparisons.

Tippawan concludes that Thailand’s financial services sector may experience changes sooner than anticipated due to regulatory reform, economic sluggishness, and digital transformation.