Prasarn Trairatvorakul, Former Governor, Bank of Thailand : Interview

Interview : Prasarn Trairatvoraku

To what extent should the sector be preparing for merger and acquisition (M&A) opportunities?

PRASARN TRAIRATVORAKU: Most Thai banks are privately run, so the issue for those banks lies in identifying the value of M&A. In the past, the Thanachart Bank and Siam City Bank merger occurred because both parties recognised their synergy. There are talks about mergers involving the country’s big four banks; however, we observe a lot of overlap between them, so they would need to address this to see the value. That being said, the medium-term outlook for this does not appear to be very positive.

Medium-sized banks have capital requirements for technology upgrades, so a merger is possible, but it will depend on their strategy. In the end, there are other strategies for becoming competitive in the region. Many regional banks with larger balance sheets penetrated Thailand, but the market remains competitive, with some still fighting for a market share and others having pulled out. Even global banks tried to penetrate the market but most remained at a low level of penetration for many years. Locally incorporated banks, some of them foreign owned, will try to gain further penetration. At the end of the day though, penetrating a market is a challenge, regardless of whether a bank has a healthy balance sheet. As in other spheres of business, further strategy will need to be adapted. If you cannot provide a full service to customers, alliances will need to be formed to expand the client base.

How is the sector adapting to digitalisation, and what can regulators do to support this process?

PRASARN: Financial technology (fintech) is a tangible business valued at $175m in Thailand. With large players such as China’s JD.com coming to the country, the Bank of Thailand (BOT) will have to adjust. The challenge is to find a balance between proper levels of regulation to keep the system healthy without excessive risk to consumers, while at the same time not hindering the advancement of innovation.

However, there is some controversy regarding cryptocurrency and crypto-assets: when a currency turns into an asset, the regulators must look at it differently. The e-wallets offered by telecoms providers should be subject to regulations designed to prevent abuse. It all boils down to a proper corporate and social governance system. Setting regulations is only one aspect of this; there must also be a drive to improve business ethics and the banking literacy of consumers. Regulators should understand they are not the only one involved in establishing the foundations for the industry.

What steps should be taken in order to minimise the detrimental impact of the baht’s strong performance on exports and tourism?

PRASARN: Thailand’s export performance is more closely related to its trade partners’ overall economic recovery and its relations with them, than the impact of exchange rates. In 2010 the baht appreciated significantly, but exports also grew by 29%. With the US Federal Reserve continuing to pursue the normalisation of interest rates, it is becoming clearer that there will be downward rather than upward pressure on the baht.

Even over the long term, the central bank cannot control the strength of the currency, and the BOT can only influence it over the short term. Each country has their own interest rate, which is determined by the conditions of their domestic economy. Our financial market is influenced by global economic trends, but we also have our own domestic conditions. Over the long term, our market will certainly feel the effect of the actions of the US Federal Reserve. Nevertheless, the Thai baht will remain a safe currency for foreign investors, as we expect no immediate pressure following a US rate hike.