Hong Kong: Thailand - An Overview of IBF Business Operation

Last Updated: 10 June 1996
Most Read Contributor in Hong Kong, September 2016
The Bangkok International Banking Facility (BIBF) was set up in 1993 and granted licenses, on the first round, to 15 local banks, 11 foreign bank branches and 21 foreign bank offices. Over the past 3 years BIBF has developed rapidly and is playing an increasingly significant role in the Thai economic and financial system which is evident in that the total of BIBF out/in loans has jumped from 1,405.8 million baht in March 1993 to reach 650,383.9 million baht by September 1995 and the organizations out/out loans also managed to total a highly respectable 440,826.6 million baht from a standing start.

There factors have made Thailand a persuasive BIBF business market for local and foreign bankers. The exiting BIBF operators are looking to upgrade to branch licenses, while foreign investors Thailand are seeking further opportunities.

The opportunity to operate BIBF business was offered early this year when the BOT offered seven full branch licenses to foreign banks. Fourteen out of twenty-one foreign BIBFs without full branch status have submitted applications. The applications have been considered and will be announced by mid 1996.

To qualify for the licenses, applicants will be considered on four basic criteria, namely capital fund size, financial status, previous performance and a history of state co-operation. In addition, the central bank may provide licenses according to a set quota system which is based on the degree or the prospect of economic relationships between the countries or continents of the applicants and Thailand. It is expected that three licenses may be granted to Japanese banks, one licence to a bank from North America, one to a bank from Europe and two to banks of Asia (the Asia quota may be considered for Japan and Europe).

The 14 applicants are Dai-Ichi Kangyo Bank, Sumitomo Bank, Sanwa Bank, Long Term Credit Bank, Industrial Bank of Japan, Societe Generale Dresdner Bank, Bank of Nova Scotia, ING Bank, Banque Nationale de Paris, Development Bank of Singapore, United Overseas Bank, Korea Exchange Bank and Bank of China.

After the seven full branches licenses are granted, the BOT will offer PIBF (Provincial International Banking Facilities) licenses to the local and foreign bankers.

The Finance Minister, Dr. Surakiart Satheanthai has also announced a tax exemption scheme in order to support Thailand becoming the financial hub of Indo-China or Asia. Six tax exemption schemes are for banks making off-shore loans via BIBF and the details are as follows:-

- Exempting the 10 percent remittance tax for out-out BIBF loans - exempting any charges for loan syndications with more than three banks, if the lead underwriter is registered in Thailand.

- BIBFs and PIBFs will be allowed to pay corporate tax together.

- State enterprises, borrowing from BIBFs will be exempted from withholding tax.

- BIBFs issuing non-resident debts will be taxed at only 10 percent instead of the current 30 percent.

- BIBF business and traditional banking firms are now required to file separate tax returns.

These show the Thai governments intention to liberalise the IBF business and welcome foreign banking investors. Taiwan and Hongkong investors are likely to shift to other countries due to the deadline of Hongkong returning to China next year and Taiwan has been threatened by China's military offensive. The opportunities are now open Thailand.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

For further information please contact Johnson Stokes & Master (Thailand)

Nuanlada Rongluangaram
Tel: (662) 231 0585-8
(662) 231 0960-4

or enter text search 'Johnson Stokes and Master' and 'Business Monitor'.

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