Thailand is a strong emerging market in the past two decades. It had been enjoyed a rapid growth of GDP with annually 9.4% during 1985 to 1996. Though there was a huge recession of the economy during Asian Financial Crisis, Thailand soon recovered after 1999 with a growth rate above 4% annually.
The GDP growth of Thailand is mainly driven by exports due to relatively weak Baht and internal domestic spending designed by Former Prime Minister Thaksin Shinawatra. The banking sector also plays a significant role of capital management and regulation in the economic growth. The overall picture of the banking sector is going to be shown in this paper.
It formally started operation on 10 December 1942.
It has the following roles and responsibilities:
1) Print and issue banknotes
2) Promote monetary stability and implement monetary policy
3) Provide services for government and acts as a registrar for government bond
4) Provide banking facilities to financial institutions
5) Supervise all the financial institutions
6) Manage the foreign exchange
The financial institutions in Thailand are being supervised mainly in two ways, on site and off site. On site one is the firm visits which are performed once a year to ensure each financial institution complying with the required standard. Off-site supervision includes the submission of monthly, quarterly and annual report for review. All financial institution are also being required for keeping certain proportion of deposits to comply with different standards concerning the liquidity, capital adequacy and so on.
4.2 Commercial Banks
3.2.1 General background
By 31 Dec 2007, there are 35 commercial banks in Thailand which consists of 18 local ones with total combined assets of US$ 277 billion and 17 foreign banks with total combined assets of US$ 36 billion. According to a report called Commercial Banks in Thailand, 52% of deposits in the funding market are provided by these banks. Commercial banks play the major role of taking deposits too, the deposits from only the banks in Thailand has already accounted for 80 % of the funding in the whole banking sector.
The sources of fund of commercial bank are mainly from deposits, the interest income is accountable for 75% of the revenue of the banks. Another source is the interbank borrowings. This shows that interest rate affect the profitability of banks in Thailand very much. This may imply there is a lot of market potential in those value-added services like wealth management and financial planning in Thailand.
Now the commercial banks are providing services mainly in taking deposit from general public and loan money to individuals and corporates, providing checking, foreign exchange services and other credit-related services.
3.2.2 Setting up a bank in Thailand
The banks have to get the license issued by the Bank of Thailand before operation. There are two types of license issued to domestic banks. The first one is called commercial bank licenses which allow these banks offer services including broking, trading and underwriting of equity securities to customers. Another one is called retail bank licenses which allow banks offer only basic services aimed at small- and medium-sized enterprises and low-income customers.
Staring from 2004, the economic reform designed by the Thailand government allows foreign banks to open more branch and the central bank will issue more licenses to increase the competition in the finance industry. Before, foreign banks can open one branch in Bangkok only and three more in other areas though they can provide...