Thursday, September 20, 2012

The Banking Industry in Thailand in 2012 and the prospect of AEC "Asean Economic Community"

The banking industry in Thailand is becoming increasingly competitive despite the high entrance barriers,  indeed there are numerous financial companies and  about 14 licenced commercial banks which make the banking industry an extremely competitive one. Moreover products and services proposed by Thai banks are very similar and the size of Thai economy make it difficult to differentiate amongst competitors. On the top of that Banking like most of the industries in Thailand  has suffered from  the floods during the past year.
In an effort to help economic recovery in Thailand, the Puea Thai government has launched  an expansionary fiscal policy since the beginning of the year  2012 to ensure a rapid recovery from floods, moreover Bank of Thailand  has implemented  an expansionary monetary policy to create synergy with the fiscal policy and boost the recovery of Thai’s economy.
Those policies are not easy to implement efficiently and  present both positives and negatives effects for  the overall banking industry in Thailandx.  The first and positive effect is the increase in  loans and borrowings from businesses, individuals due to lower interest rates which accounts for an important part of Banks’ revenues. Secondly the weaknesses of these policies  is that it automatically decreases the savings deposited at the banks and people are looking for higher returns investment such as stocks, moreover the increase in employee’s salaries has resulted in higher operating cost and  thus lower profits.
Despite an uncertain economic stability and  increasing competition, important opportunities arise from the upcoming AEC (ASEAN Economic Community),  indeed AEC could be the major opportunity to expand internationally, that's why the Thai government has recently asked to postpone the AEC from 2015 to 2016 in order to prepare the SME to this change as Thailand has a significant language weakness compared to other ASEAN countries. The free trade agreements that will result from AEC will be the time for the Thai banking industry  to expand in  in neighboring countries with a less developed banking system such as Burma, Laos and thus increase profits significantly.
Secondly, AEC will bring large opportunities to increase revenue of the banks as it will make ASEAN one of the major manufacturing hub in the world with important need for banking products related to import and more particularly exports. On the other hand  all the countries within AEC will keep their own currencies therefore banks must prepare to implement foreign exchange products efficiently such as forward and swaps.
Another opportunity for the Thai banking industry to differentiate from customers would be to devellop new banking products such as improving their e-banking features or implementing new payment method such as NFC technology which allows customers to pay directly from their smartphones or NFC cards, this technology is indeed highly popular in other Asian countries such as Japan.


Finally, the increase in the minimum wage in Thailand  can also be an opportunity and  the banks should developed  products for “Small Savers” and promote it within other region than Bangkok, in order to develop banking system  in more rural areas of Thailand , by creating those services and products they could reach an important numbers of new customers and gain market share within AEC.

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