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NINA SUEBSUKCHAROEN
While its exports are doing very well, Thailand is not completely decoupled from what was happening in the outside world, says Mr Tham. |
Thai businesses should take advantage of the current low-interest rate environment to secure cheaper funding for any future expansion, according to Willie Tham, the CEO for Thailand of Hongkong Shanghai Banking Corporation (HSBC).
Real interest rates, the nominal interest rates minus the inflation rate, are actually in negative territory right now. The Bank of Thailand increased its policy rate to 3.75% this week while the headline consumer price index (CPI) was at 9.2% in August.
''The gap is quite substantial and if local corporates decide to lock in interest rates now _ and they can do that through interest-rate swaps and so forth _ then it could be very advantageous for them because the trend for interest rates is up.''
The global banking giant's economists and strategists both here and in Hong Kong project that the headline CPI, which includes food and fuel, should be around 7.3% by the end of this year before dropping to 5.2% next year. On the other hand, the core CPI, which currently stands at 3.7%, should drop to around 3% at the end of this year and rise to 3.6% next year.
Mr Tham expects the Bank of Thailand's policy rate to rise to around 4% by the end of this year and then jump again to 4.5% by the end of next year.
''Deposit rates are rising and there is quite a lot of competition out there for deposits, a lot of banks are bidding very high for deposits.''
Although rising inflation is a global headache right now, he believes Thailand is quite fortunate because the increase here has been the lowest in the region. A contributing factor is that Thailand is a net food exporter but on the other hand it imports a lot of oil. While oil prices have dropped by 20% from $147 a barrel in July, the trend is upwards.
''It's unlikely to drop substantially; I think the trend is actually up. So Thai businesses need to be more energy-efficient.''
Mr Tham added that while Thailand's exports were doing very well even though the US was facing strong economic problems and the EU looked set to also be hit, this country was not completely decoupled from what was happening in the outside world.
HSBC's research shows that Thailand's exports to the US actually shrank by 1% in 2007 although total exports grew by 17%. In the first half of this year, exports to the US grew by 6%, far lagging the total export growth of 23%.
Mr Tham explained that this showed that Thailand was still linked to the US but to a lesser degree. As well, there was a shift to the Asian market, ''particularly China, because China has been sucking up a lot of goods from exporters around the region.''
However, while the Chinese economy is booming right now, it is not decoupled from the US despite what some people say. An expert from China Mr Tham talked to recently mentioned that the Chinese economy was beginning to soften. It has also been observed that the economy of the country hosting the Olympic Games generally weakens a bit after the global sporting extravaganza ends.
''So China is the place to watch. The issues in the US are fairly well-known although people don't know where the bottom is yet. But China continues to be a bit of an enigma and I think over the next six months things will start to reveal themselves.''
Mr Tham also observed that the Thai infrastructure needs to be improved. ''I have been to Laem Chabang, Map Ta Phut and Rayong and one of the key issues that people there tell me about and from what I observed [is that] they need good infrastructure to facilitate the logistics.''
Mr Tham is also concerned about the current volatile political situation. Certain moves last year not only did not promote stability, they actually built up uncertainty. ''The amendment of the Foreign Business Act, for example, put a lot of people off. But despite that, there was still a big inflow of foreign direct investment. Just imagine how much more that could have been if things were more stable and certain.''
Although HSBC, which is very well-entrenched in Thailand as it is the country's first bank and celebrates its 120th year here this year, was among 10 foreign institutions and three Thai institutions that failed to acquire a 42.13% stake in BankThai, which went to Malaysia's CIMB Group. Mr Tham underscored that his bank was still extremely interested in another such opportunity. ''There is a lot of support from our head offices in Hong Kong and London.''
HSBC is also looking forward to opening more branches in Thailand if the central bank permits it.
HSBC also has a presence in Vietnam. It now has both organic and strategic interest in this country. The global banking giant became the first foreign bank allowed to form a strategic partnership with a local one. It acquired a 15% stake in Techcombank and recently increased it to 20%. Organically, HSBC has been allowed to locally incorporate and is going through this process right now.
HSBC is also looking at other opportunities such as expansion into Laos, which is also currently attracting some foreign investment. ''We are very keen on banking those people.''
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