BANGKOK Dec 2 Thailand's big banks are hitching
a ride on the caravan of Thai companies departing for new growth
centres in the Greater Mekong region, which includes Myanmar and
southern China, as a chill in retail lending drives them to look
outward for long-term growth.
Bangkok Bank, Krung Thai Bank, Siam
Commercial Bank (SCB) and Kasikornbank are
investing millions in new branches overseas as they step up
lending and trade financing to Thai businesses expanding in
Cambodia, Laos, Myanmar and Vietnam.
"Expanding in foreign markets where we are not familiar has
some risks," Chaiyarit Anuchitworawong, executive vice president
of Bangkok Bank, told Reuters. "But if our clients go first and
we follow them, this will help reduce some risks."
Thai direct investment in Cambodia, Laos, Myanmar and
Vietnam rose to $936 million last year, the highest since the
2008-2009 global crisis. At stake for Thai entrepreneurs - and
Thai banks - is a chance to grow in a combined economy almost
the size of Thailand's.
The formation of a single market in Southeast Asia, planned
to begin in 2015, also raises hopes of freer capital flows and
expectations of higher demand for banking services.
Success for Thailand's banks will depend on how quickly they
can beef up their presence. Any stalling in domestic loan and
deposit growth due to the prolonged and severe downturn in the
Thai economy or a sharp drop in the banks' substantial capital
reserves will challenge their plans, analysts say.
Kasikornbank plans to nearly double its staff in Southeast
Asia and China next year, after investing $40 million in a new
branch in Laos opening in December, its president Teeranun
Srihong told Reuters.
SCB aims to hire up to 50 staff in Cambodia, Laos, Myanmar
and Vietnam over the next three to five years as the bank sets
up the infrastructure for corporate banking, said Kamalkant
Agarwal, head of its international banking business.
Bangkok Bank, which has the biggest foreign operation among
Thailand's big four banks with international lending comprising
16-17 percent of total loans, plans to open a branch in Phnom
Penh this year. It is also the only Thai lender with a banking
licence in Myanmar.
"We do not expect to see strong growth in the near future,
but it's an opportunity that will boost organic growth for Thai
banks," said Adisorn Muangparnchon, a Bangkok-based analyst at
Phillip Securities. "Risk will be limited, given most Thai banks
are following Thai companies expanding in the region."
Bankers have voiced concerns about compliance and regulatory
uncertainty, especially in Myanmar. But Thai companies remain
upbeat about the region.
"Economies have a very strong potential with average growth
of 7 to 8 percent a year. Myanmar's (energy drink market) has
grown 150 percent in the past year," said Sathien Setthasit, CEO
of Thai energy drink maker Carabao Group.
Political unrest and a military coup this year have slowed
Thai investment in the region. In the first nine months of 2014,
direct investment in Cambodia, Laos, Myanmar and Vietnam fell
13.46 percent to 20.4 billion baht ($619.87 million), Bank of
Thailand data published on Nov. 28 shows.
The political upheavals have also disrupted a decade-long
Thai credit boom. Non-performing consumer loans have soared to a
four-year high as households struggle to pay back debts,
slamming the brakes on private demand and leading the World Bank
to cut Thailand's economic growth forecast to the lowest in
To be sure, Thai banks are far better capitalised today with
bigger buffers against bad loans compared to the 1997-98
financial crisis. The capital adequacy ratios of the country's
big four lenders range from 15.85 percent to 18.7 percent.
Among banks in Southeast Asia's biggest economies, Thai
lenders also stood out with the highest return on equity last
year, at 21.4 percent, Thomson Reuters data shows.
Now is their chance to look outward, analysts say.
Competition from regional players in the domestic banking
scene is also intensifying, building a case to diversify.
Mitsubishi UFJ Financial Group acquired a 72 percent
stake in Bank of Ayudhya Pcl, Thailand's fifth-biggest
lender, in late 2013.
Increasing economic integration will also drive capital
flows across borders, and in turn, demand for banking services
and lending, said Kittiya Todhanakasem, first senior executive
vice president at Krung Thai Bank.
"Those countries are undergoing several infrastructure
projects, giving Thai companies an opportunity to get orders and
operate in those countries," Kittiya said.
($1 = 32.9100 baht)
(Additional reporting by Patturaja Murugaboopathy in BANGALORE;
Editing by Ryan Woo)