Recent changes in the banking law in Thailand have created an ideal opportunity for foreign banks currently operating in Thailand, as well as those seeking to invest in the country, to take advantage of the newly relaxed restrictions governing banking.
Owning or operating a bank in Thailand has been a difficult achievement, not only for a foreign banker, but also for a new Thai investor. The rapid changes and deregulation of the world financial environment (GATS) have however led to greater competition and have resulted in financial liberalisation in Thailand. The Thai government has included "The Financial System Master Plan" in its new financial policy. The main points of which are essentially as follows:-
1. Expanding the scope of operation of Financial Institutions,
This will enable private financial institutions, namely commercial banks, Bangkok International Banking Facilities (BIBFS), financial companies, credit foncier companies, securities companies and mutual fund management companies to operate businesses in line with international practices and standards, and to strengthen their competitiveness. For example, securities companies will be permitted to act as provident fund managers and operate foreign exchange business related to their securities operations, and finance companies will be allowed to conduct overlapping business with commercial banks, such as international and foreign exchange activities.
2. Opening the domestic financial market for local bankers and foreign Financial Institutions.
This will be achieved by: -
2.1 Awarding five new commercial bank licenses to local institutions which will permit foreign investors to participate, by being a maximum 25% shareholder, on the condition that the foreign shareholder must be a large reputable institution with a wide network and that they intend to operate a banking business in Thailand.
2.2 For foreign financial institutions, five to seven BIBFS will be up graded to full-branch status by mid-1996 and will be followed by the opening of the second round of BIBF and permission for existing foreign bank's to open additional branches.
3. Encouraging small banks to merge and seek acquisitions.
This should improve efficiency and ensure survival in the highly competitive banking market as well as giving foreign investors the opportunity to be an active partner with a Thai bank. Local banks in Thailand are keen to sell their increasing shares to foreign banks as they believe this will help their growth and ensure stability. The Arab Banking Corporation currently holds 20 percent shares in the Union Bank of Bangkok. Thai Danu Bank currently has three foreign banks as shareholders - Daiwa Bank of Japan holding 1.6 percent Development Bank of Singapore holding 3.3 percent, and Tutless Bank of Singapore with 2.05 percent.
The Thai government wants to develop Thailand into a regional financial center and whilst this pressurises local Thai banks into adapting to change, it is an ideal opportunity for foreign banks currently operating in Thailand and those seeking the chance to invest in Thailand, to take advantage of the relaxed restrictions governing banking.
The content of this article are intended as a general guide to the subject matter. Specialist advice should be sought for your specific circumstances.
For further information please contact Nuanlada Rongluangaram Johnson Stokes & Master (Thailand) Tel: (662) 231 0585-8 or (662) 231 0960-4; or enter a text search 'Johnson Stokes & Master' and 'Business Monitor'.