Why Aren’t Thailand’s Banks More Profitable? – The Diplomat

Pacific Cash | Economic system | Southeast Asia

In a current submit I mentioned how and why Indonesian banks, each personal and state-owned, have recovered strongly from the COVID-19 pandemic and are actually posting giant earnings and paying shareholders billions of {dollars} in dividends. In one other submit, I defined how the Philippines is making an attempt to consolidate its state-owned banks to allow them to be optimized for profitability and supply a supply of funding for the nation’s new sovereign wealth fund. However whereas many banks within the area have seen sturdy post-pandemic recoveries, Thailand’s greatest banks proceed to submit solely modest earnings.

In 2022, Bangkok Financial institution, Kasikornbank, and Krungthai Financial institution collectively held $310 billion in belongings. But, their mixed after-tax earnings have been solely $2.6 billion. As a degree of comparability, Indonesia’s Financial institution Rakyat Indonesia earned greater than all three Thai banks mixed. None of Thailand’s three largest banks recorded greater than $1 billion in internet revenue, and each Bangkok Financial institution and Kasikorn had decrease earnings final yr than they did in 2019. How can we clarify this sluggish restoration, when different banks within the area are surging towards report earnings? Why aren’t Thailand’s banks extra worthwhile?

The very first thing that jumps out is that in the course of the pandemic, deposits at many banks around the globe elevated by quite a bit. Individuals and companies, unable to go about their common actions, have been pressured to sit down on money. In nations like the USA, monetary transfers from the federal government helped swell the deposit bases of many banks. However in Thailand, development in deposits in the course of the pandemic was comparatively average.

At Bangkok Financial institution, the most important financial institution in Thailand by asset dimension, deposits grew simply 17 % from 2019 to 2022. Deposits at Indonesia’s largest non-state financial institution BCA jumped 47 % in the course of the pandemic, and at Silicon Valley Financial institution in the USA they exploded by 180 % (which finally helped precipitate the financial institution’s collapse). Thailand’s huge banks didn’t expertise a equally giant rise in deposits in the course of the pandemic, which suggests they’d much less funds accessible for loans and different income-generating investments.

One other factor holding again earnings at Thai banks is the best way their steadiness sheets are structured. Bangkok Financial institution (the financial institution itself, not its consolidated entities) had $110 billion in belongings final yr, 55 % of which have been loans to prospects, 18 % investments and 15 % cash deposited at different banks. The overwhelming majority of interbank deposits have been parked at Financial institution of Thailand, whereas the majority of investments have been in debt securities issued by the Thai authorities or state-owned enterprises. It is a fairly typical steadiness sheet for an enormous Thai financial institution. The issue, if we’re speaking about earnings, is that cash deposited on the central financial institution doesn’t earn a whole lot of curiosity. Bonds points by the federal government and state-owned entities are additionally very low-yield.

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I believe what occurred is that in the course of the pandemic, to keep away from working huge deficits Thailand was considerably restrained within the scale of its stimulus and financial rescue packages. That is supported by the truth that deposits didn’t improve in Thailand as a lot as they did in different nations the place the federal government pumped extra money into the financial system.

Thailand’s monetary system can also be constructed round low rates of interest. Which means cash held on the central financial institution or invested in debt securities like bonds won’t earn huge returns. And in Thailand, such interbank deposits and debt securities can comprise a 3rd or extra of a financial institution’s belongings. This helps clarify why Thai banks are lagging a few of their regional friends in profitability.

This low-rate monetary surroundings is by design. It’s a part of an financial mannequin designed to optimize exports, surpluses and foreign money stability. Typically talking, excessive rates of interest can entice overseas capital and strengthen currencies. However Thailand doesn’t need debt-financed development or a powerful foreign money. They need exports. And so they have designed a monetary system geared towards doing that, moderately than delivering huge financial institution earnings.