Pacific Money | Economy | Southeast Asia
Compared to their counterparts in Indonesia and the Philippines, the nation’s monetary establishments have seen solely modest progress.
In a latest put up I mentioned how and why Indonesian banks, each personal and state-owned, have recovered strongly from the COVID-19 pandemic and are actually posting massive income and paying shareholders billions of {dollars} in dividends. In one other put up, 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. But whereas many banks within the area have seen sturdy post-pandemic recoveries, Thailand’s greatest banks proceed to put up solely modest income.
In 2022, Bangkok Bank, Kasikornbank, and Krungthai Bank collectively held $310 billion in property. Yet, their mixed after-tax earnings had been solely $2.6 billion. As some extent of comparability, Indonesia’s Bank Rakyat Indonesia earned greater than all three Thai banks mixed. None of Thailand’s three largest banks recorded greater than $1 billion in web revenue, and each Bangkok Bank and Kasikorn had decrease earnings final 12 months than they did in 2019. How can we clarify this sluggish restoration, when different banks within the area are surging towards file income? 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 world wide elevated by loads. People and companies, unable to go about their common actions, had been pressured to take a seat on money. In nations just like the United States, monetary transfers from the federal government helped swell the deposit bases of many banks. But in Thailand, progress in deposits in the course of the pandemic was comparatively reasonable.
At Bangkok Bank, the most important financial institution in Thailand by asset dimension, deposits grew simply 17 p.c from 2019 to 2022. Deposits at Indonesia’s largest non-state financial institution BCA jumped 47 p.c in the course of the pandemic, and at Silicon Valley Bank within the United States they exploded by 180 p.c (which finally helped precipitate the financial institution’s collapse). Thailand’s large banks didn’t expertise a equally massive rise in deposits in the course of the pandemic, which suggests that they had much less funds accessible for loans and different income-generating investments.
Another factor holding again income at Thai banks is the best way their stability sheets are structured. Bangkok Bank (the financial institution itself, not its consolidated entities) had $110 billion in property final 12 months, 55 p.c of which had been loans to clients, 18 p.c investments and 15 p.c cash deposited at different banks. The overwhelming majority of interbank deposits had been parked at Bank of Thailand, whereas the majority of investments had been in debt securities issued by the Thai authorities or state-owned enterprises. This is a fairly typical stability sheet for an enormous Thai financial institution. The downside, if we’re speaking about income, is that cash deposited on the central financial institution doesn’t earn loads of curiosity. Bonds points by the federal government and state-owned entities are additionally very low-yield.
I feel what occurred is that in the course of the pandemic, to keep away from operating large deficits Thailand was considerably restrained within the scale of its stimulus and financial rescue packages. This is supported by the truth that deposits didn’t enhance in Thailand as a lot as they did in different nations the place the federal government pumped extra money into the economic system.
Thailand’s monetary system can be constructed round low rates of interest. That means cash held on the central financial institution or invested in debt securities like bonds is not going to earn large returns. And in Thailand, such interbank deposits and debt securities can comprise a 3rd or extra of a financial institution’s property. This helps clarify why Thai banks are lagging a few of their regional friends in profitability.
This low-rate monetary atmosphere is by design. It is a part of an financial mannequin designed to optimize exports, surpluses and forex stability. Generally talking, excessive rates of interest can entice international capital and strengthen currencies. But Thailand doesn’t need debt-financed progress or a robust forex. They need exports. And they’ve designed a monetary system geared towards doing that, relatively than delivering large financial institution income.
Source web site: thediplomat.com
