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E-girls symbolise focus for the futureSurvival assured, banks are looking at electronic commerce, kiosks and other ways of moving closer to their customers Darana Chudasri and Cholada Ingsrisawang
The Bank of Thailand continued to pursue a loose monetary policy, allowing interest rate margins to widen and help local banks raise earnings. Several banks, including Bank of Asia, DBS Thai Danu and Thai Military Bank, announced or finalised plans to raise new capital this year. This prompted bank regulators to state in May that even with no further reductions in bad loans, current capital funds in the system were sufficient for operations to the end of 2001. With immediate concerns over survival easing, banks turned their attention to the future, where new technology, foreign competitors and liberalisation will bring sweeping changes to financial markets. One new competitor is the bond market, which has rebounded in the past year due to plentiful liquidity and low interest rates. Several large companies, such as Siam Cement and Advanced Info Service, turned to issuing new bonds to help refinance existing loans. With top corporations expanding their financing options beyond the banking sector, most institutions said they would give more attention to small and medium enterprises and the retail market, where opportunities to maintain high-margin lending and services are brighter. Retail banking The quasi-foreign banks - Bank of Asia, DBS Thai Danu, Standard Chartered Nakornthon and UOB Radanasin - also expanded their efforts to boost market share. Many institutions also ramped up their activities through the Internet, including non-bank institutions such as GE Capital with thailifestyle.com and Lehman Brothers at globalthai.com. The sites offer a range of services, including credit cards, home mortgages and car loans. One of the most visible campaigns was Thai Farmers Bank's outlay of more than 20 million baht to sign up eight "e-girls" to promote the bank's electronic services - ATMs, phone banking, cash cards, mobile banking, e-commerce and Internet banking. The bank hopes this will encourage customers to move away from teller-based services to new technology. The bank aims to sign up one million customers for its e-banking services this year. Outlets opened at malls and superstores, while kiosks at BTS Skytrain stations also promote the bank's new services. Other banks have taken similar steps. Krung Thai Bank launched a pilot PR Executive project in March. New graduates were recruited to promote the state bank's credit cards through a new, modern image. Krung Thai executives say the blend of corporate image-building and tactical advertising has proved successful in marketing the new products much more cheaply than by using printed media and television. New products, such as mobile-phone banking and Internet banking, were launched by several banks in the first half of this year, led by Siam Commercial Bank and Thai Farmers Bank.
Electronic banking also creates an opportunity to raise fee-based income, the key to future profitability as competition stiffens in the market. Local bankers say they hope to raise fee income to 40-50% in a few years from 15-25% now. Most banks are moving to bring in new technology making ATMs, automatic passbook machines and self-service centres the core of new outlets and limited branches. Going to the customers is the new mantra in managing branch networks. Bank of Asia was the first bank to pursue this strategy when its first Tops Supermarket branch opened at Central Chidlom in mid-1999. Since then, other banks have opened retail outlets at high-traffic shopping malls, discount stores, supermarkets and hypermarts. By the end of June, Bangkok Bank had already opened six in-store outlets. Extended-hour and weekend banking is also offered by Bank of Ayudhya, Thai Military bank, Bank of Asia and DBS Thai Danu. Internal change Expanded marketing has accompanied efforts to streamline internal operations. Nearly all banks are restructuring their risk management systems and credit analysis procedures. Branches are now primarily service promotion points, while credit approval and screening is done either at the main office, business centres or regional hubs. Downsizing also continued, led by DBS Thai Danu Bank, which shed 700 staff to leave 1,850 employed by the end of March. It also closed 35 branches to leave 62 nationwide. Further expansion, the bank said, would be led through new kiosks, such as a pilot project at Siam Discovery Centre, or by mobile banks, basically trucks which can move from location to location as needs demand. State-owned BankThai cut 361 staff through early retirement programmes to leave 2,847 positions at the end of April, while Thai Farmers Bank saw 1,700 people accept early retirement, bringing the bank's payroll down to about 11,700. Several banks plan to bring in strategic partners to assist expansion while keeping control of costs. Bank of Ayudhya announced a 50-50 partnership with GE Capital to offer credit card services. Bank of Asia announced plans to offer cash management services to small and medium enterprises nationwide through branches of the Government Savings Bank and the Government Housing Bank. Improved balance sheets Three banks - Siam Commercial Bank, Thai Farmers Bank and Bank of Asia - posted net profits for the first quarter. Nearly all banks improved profits, with operating profits increasing as a result of widening interest rate spreads and better bottom-line figures as the need to raise provisions decreased. All banks have until December to make full provision against losses on loans. By the end of June, the nine privately owned banks has either completed their provisioning or were awaiting final recapitalisation before doing so in the third quarter. Siam Commercial Bank and Thai Farmers Bank, both of which completed recapitalisation and provisioning in 1999, showed the strongest performance, and are expected by many analysts to show net profits for the whole year. Other banks, including Krung Thai and Thai Military Bank, are also expected to show improved performances. But whether or not profits materialise hinges on success in debt restructuring and overall economic conditions. In April, the cabinet approved a plan to set up an asset management company for Krung Thai that would accept loans totalling 530 billion baht overdue more than 12 months. The Sukhumvit AMC will be fully owned by the Financial Institutions Development Fund. Once final transfers are completed, Krung Thai's assets will be halved, with problem loans declining to about 16% of total loans. Another important regulatory move in the second quarter was the announcement by the Bank of Thailand that it had completed talks with HSBC Holdings on the sale of Bangkok Metropolitan Bank. The British banking giant will take a 75% stake in Bangkok Metropolitan for 36.6 billion baht. Thai Military Bank completed recapitalisation in May, raising 9.96 billion baht by selling new common shares to existing shareholders and new investors. Another 19.2 billion baht will come from the placement of preferred shares with the Finance Ministry. DBS Thai Danu completed a 13.5-billion-baht capital increase in June, allowing the bank to raise provisions to full coverage. The bank is now focused on expanding its retail franchise and plans to sell problem loans. While the second half of this year should see continued improvement for local banks, few expect full recovery for several years, given the massive accumulated losses resulting from the crisis. By the end of April, problem loans within the financial system stood at 1.95 trillion baht, or 36.47% of total outstanding loans, according to the central bank. Restructured loans from 1998 to April totalled 1.36 trillion baht. Several major restructuring cases were finalised in the first half, including Thai Petrochemical Industries, Thaioil and Thai Telephone and Telegraph. The TPI case was closely watched by bankers and investors, as it was viewed by many as a test case of the effectiveness of the bankruptcy laws. After months of fierce debate, the Central Bankruptcy Court ruled in favour of petitioning creditors and ordered TPI to enter business rehabilitation for its $3.5-billion debt. Creditors later appointed Effective Planner, a subsidiary of consulting firm Ferrier Hodgson, to oversee the restructuring plan. To accelerate restructuring, the central bank told local banks to submit monthly reports on their negotiations with delinquent borrowers. If talks failed to be completed within a set period, banks were encouraged to file suit. Yet many banks, wary of damaging customer relationships, have been reluctant to take legal action, preferring to continue talks in hope of a successful restructuring. Several banks also established asset management companies, a move which the central bank has encouraged as a means of dealing with bad debts while allowing the parent bank to focus on new lending. Thai Farmers Bank announced it would transfer around 70 billion baht in dud loans to its fully-owned management firm at a 50% discount. Assets at the Thonburi AMC would be managed by Alpha Capital. Chantaburi AMC, meanwhile, will oversee assets from defunct Thai Farmers subsidiary Phatra Thanakit. To date, Thai Farmers has been able to restructure debt worth 155 billion baht, with another 79 billion remaining. Bangkok Bank has set up an asset management firm. Plans call for the fully-owned subsidiary to oversee assets foreclosed from delinquent borrowers. Siam Commercial Bank's own Chatuchak AMC will take over debt worth 30 billion baht. The firm is negotiating with foreign institutions to jointly manage the assets. |
Thai banks entered the 21st century deeply scarred by the economic crisis. Yet while non-performing loans have remained stubbornly high, at more than 37% of total loans at the end of the first quarter, many analysts and bankers expressed cautious optimism that the worst might be over.
Hundreds of millions of baht were earmarked for hardware and software upgrades and campaigns. But in the long-run, banks say shifting retail services and customers to use electronic banking makes sense. The cost of an ATM transaction is a fraction that of giving personal service.© Copyright The Post Publishing Public Co., Ltd. 2000
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