Efforts focus on making Thailand a regional financial hub

An initiative driven by Thailand to develop closer financial integration and cooperation among the Greater Mekong Subregion countries could bolster Bangkok’s position as a capital markets and banking centre. Thailand’s campaign to strengthen fiscal and economic ties with its near neighbours reached a new level in June 2016, when it hosted a two-day summit for Cambodia, Laos, Myanmar, Vietnam and Thailand (CLMVT). Entitled CLMVT: Prosper Together, the event focused on developing a platform to reinforce subregional integration and connectivity in matters of trade and tourism.

Infrastructure Investment

One of the pillars of this platform will be developing financial infrastructure to support the greater flow of capital and information. Veerathai Santiprabhob, governor of the Bank of Thailand (BOT), and a keynote speaker at the conference, emphasised that investing in infrastructure will be crucial in allowing CLMVT countries to work together and meet the demands of the changing financial landscape. “Having adequate infrastructure, including a backbone payment system, a digital network and a credit bureau, will provide a sound basis to develop domestic financial systems and facilitate closer financial connectivity,” he said, noting that the development of regional ties will help reduce costs within the sector and across CLMVT economies, boosting cross-border trade and the broader use of e-payment systems.

Financial Integration

Another key message to come out of the conference was that further integration of CLMVT financial markets would support growth in all five countries, as well as cross-border expansion. Speaking during a session on the roles of banking and finance in regional development, Chartsiri Sophon-panich, president of Bangkok Bank, stressed that while growth in the CLMVT region is set to remain strong in the coming years, in line with the 6.5-8.5% range posted in 2015, this could be increased further through tighter financial cooperation. Such a move would mobilise funding and minimise and more evenly distribute risk.

Stronger Bond Market

As the largest economy in the CLMVT bloc, and with the most developed capital markets and banking system, Thailand is well placed to take the lead on financial connectivity. Thailand’s bond market is already gaining traction among CLMVT countries, bringing the region closer to financial integration. In 2013 Laos issued the first in a series of baht-denominated bonds, with the latest coming out in 2015. With a total value of BT28bn ($788.8m), the funds have helped finance the Laotian government’s infrastructure development programme. At the corporate level, Laotian utilities firm EDL Generation has also tapped the Thai capital markets, raising BT6.5bn ($183.1m) in 2014 to fund the acquisition of power stations from its parent company, Electricité du Laos.

While Laos has been Thailand’s main customer for bond sales, there is strong interest from other countries launching offerings in Thailand. In 2014 the Cambodian government indicated it could follow the Laotian example by issuing a baht-denominated sovereign bond in 2018. Consultants advising the Cambodian government said at the time that Thailand represented the best opportunity for a sovereign bond launch, as Thai authorities had put in place mechanisms to support such cross-border issues. More recently, however, Cambodian officials indicated that any baht-denominated bond would require regulatory reforms, similar to what has been suggested by Thailand.

Thailand’s bond market is also attracting interest from further afield. By mid-2016 four foreign lenders – ANZ Bank of Australia, Central American Bank for Economic Integration, National Bank of Abu Dhabi and Malaysia-based Maybank – were given regulatory approval to tap Thai markets through a baht bond issue. The Ministry of Finance has also taken steps to boost the bond market, and since early 2016 it has been reviewing applications to issue bonds by foreign issuers on a monthly basis, rather than every quarter, due to an increased appetite for baht-denominated issues.