Small Thai banks are turning to foreign partners to survive intense competition from their larger, domestic rivals, analysts said. Small banks, which survived the 1997 Asian financial crisis, were eyeing foreign partnerships in attempts to shore up their capital and boost competitiveness in the contracting sector.
"Without foreign shareholders, medium-sized Thai banks have limited chances to keep making profits for years to come," said Kavee Chukitkasem, a senior analyst at Capital Nomura Securities.
Bank of Ayudhya, Thailand's sixth-largest, said last month it planned to sell a 25.4 percent stake to US conglomerate General Electric's consumer finance unit, GE Money, for 22 billion baht (586 million dollars). "During the 1997 financial crisis, we went through several changes to survive. Now we are facing a new challenge to grow our business further," said Charlotte Donavanik, executive vice president of Bank of Ayudhya.
The deal came as BankThai, a small state-controlled bank, said it would sell a 24.99 percent stake to TPG Newbridge, the Asian investment arm of US-based Texas Pacific Group, for five to seven billion baht. Led by top lender Bangkok Bank, Thailand's four major banks control some 60 percent of the market, with 14 commercial banks competing for a share.
"The banking sector is performing well despite a slowing Thai economy this year. But competition is stiff and a tie-up with foreign partners is the quickest solution" to increase competitiveness, said Thanyalak Surapol, a banking analyst at Kasikorn Research Center.
In the early 1990s, Thailand's banking sector was growing by 15 to 20 percent per year but growth contracted sharply in the wake of the 1997 financial crisis.
Thailand provided the spark for the crisis when it let its currency float in July 1997 amid balance of payments troubles.
That set off a chain reaction of collapsing Asian currencies and soaring interest rates throughout the region which crippled economic growth and led to massive World Bank and International Monetary Fund bail-outs.
The crisis also brought a major change in the Thai banking system as the government raised the limit on foreigners holding Thai bank shares to 49 percent from 25 percent for a 10-year period.
That resulted in a number of mergers between small Thai banks and foreign financial giants including Southeast Asia's biggest lender DBS Group Holdings, Dutch-based bank ABN Amro and Standard Chartered, the London-based lender.
Pornsilp Patcharintanakul, deputy secretary-general of the Board of Trade, a major business group, said more foreign partners would likely enter the Thai banking market due to intense global pressure for liberalisation. "In the next 10 years, we may see further liberalisation because of pressure from outside," Pornsilp said.
The United States, the kingdom's biggest trading partner, is pushing for liberalisation in the Thai banking, insurance and securities sectors in stalled free trade talks.
"After the industrial and telecom sectors, now the banking sector is under pressure from powerful countries so that more foreign investors can enter the Thai market," Pornsilp said.
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