Thailand Bank Mergers May Increase Amid Competition

Thailand's banks may face more mergers and acquisitions amid pressure to cut costs and increase capital as competition intensifies, Bank of Thailand Deputy Governor Bandid Nijathaworn said.

Rule changes this year allowing overseas fund-raising and investments and the planned removal of a full government guarantee of deposits will force local banks to reorganize, Bandid, 54, said in a Sept. 25 interview in Bangkok.

``Size does matter for banks,'' said Bandid, who is responsible for the stability of Thailand's financial institutions, including the 14 local banks. ``The biggest Thai bank now is 30 times larger than the smallest one in terms of assets. That's a huge gap. The bigger size leads to economies of scale and lower costs.''

General Electric Co. (BAY) and TPG Inc., the Texas buyout firm, are among overseas investors that have already taken stakes in local banks. Thailand's military-installed government plans a legal change by year end to lift the foreign-ownership limit in the nation's banks to 49 percent from 25 percent as it tries to improve financial-market competitiveness.

``Foreign partners in Thai banks will boost their competitiveness and may lead to revaluations,'' said Nasu Chunsom, who helps manage the equivalent of $1.2 billion of assets including banks' shares at Ayudhya Fund Management Ltd. in Bangkok. ``This trend is good for Thailand's banking sector.'' Nasu said he holds more Thai bank stocks than the group's 15.6 percent weighting in the benchmark SET Index.

Cheaper Price

Investors pay 12.5 times earnings to own shares in Thailand's largest bank, Bangkok Bank Pcl. (BBL) That compares with the 18.5 times earnings average valuation of shares in Morgan Stanley Capital International's 223-member Asia-wide MSCI AC Asia Pacific Financials Index.

Amsterdam-based ING Groep NV is among banks eyeing investments in Thailand as it expands into less developed markets. The No. 1 Dutch financial-services company may buy shares in TMB Bank Pcl (TMB), Thailand's sixth largest bank. Shares in the bank, which posted its biggest loss in seven years in the second-quarter, have sunk 20 percent this year, compared with an 18 percent gain in the 12-member SETBANK Index.

GE, TPG

General Electric Co. since July has lifted its stake in Bank of Ayudhya Pcl to 35 percent from 29 percent. TPG in March bought a 25 percent stake in state-controlled BankThai Pcl.

Malaysia's Bumiputra-Commerce Holdings Bhd. and Industrial & Commercial Bank of China are competing for a ``major'' stake in government-owned ACL Bank Pcl, Thailand's smallest bank, Finance Minister Chalongphob Sussangkarn said last month.

Thailand's four largest banks, Bangkok Bank, Krung Thai Bank Pcl (KTB), Siam Commercial Bank Pcl (SCB) and Kasikornbank Pcl, each have assets valued at more than 1 trillion baht ($29 billion) and together account for more than three-fifths of the industry, according to Kasikornbank Research Center.

``Mergers and acquisitions will help strengthen banking businesses,'' Bandid said. ``This will help them survive.''

To contact the reporter on this story: Suttinee Yuvejwattana in Bangkok at Suttinee1@bloomberg.net

To contact the editor responsible for this story: Tony Jordan at tjordan3@bloomberg.net

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