A merger between Krungthai Bank (KTB) and TMB Bank is possible because the Finance Ministry is a major shareholder in both financial institutions, analysts say, although the benefits of such a deal remain unclear.
The merger would result in a bank with significant asset size, given the Finance Ministry's approval, said Usanee Liurat, executive vice-president of Asia Plus Securities (ASP).
Significant changes, however, are not foreseeable as the business model of these two banks are similar, Ms Usanee said.
ASP also predicts a merger between Bangkok Bank (BBL) and Tisco Financial Group (Tisco) would be a good union because BBL does not have a hire-purchase business, while Tisco's strengths lie in hire-purchase and leasing businesses, she said.
If this deal materialises, both entities would benefit from larger asset size and operations, said Ms Usanee.
A merger between a major financial institution and a mid-sized or small bank is more viable than mergers between two large banks or a mid-sized bank merging with a small-sized bank, she said.
"The best case is mergers and acquisitions [M&As] is to benefit from a larger asset size and synergy," she said, noting that Bank of Ayudhya's (BAY) business is already diversified, therefore M&A is not a goal for BAY.
The most recent acquisition in Thailand's banking industry was in 2011 when Thanachart Bank took over Siam City Bank for more than 60 billion baht.
The acquisition took more than one year to process, but the latest tax deductions and exemptions to encourage mergers among Thai banks will be extended until 2022, allowing time and support for the merger process among banks, Ms Usanee said.
A source in the banking industry said a merger between KTB and TMB is theoretically plausible because the government is a major shareholder in both financial institutions.
The Financial Institutions Development Fund holds the lion's share in KTB at 55%, while the Finance Ministry owns a 25.9% stake in TMB.
TMB chief executive Piti Tantakasem said a banking merger is theoretically promising in the digital era because of the high investment costs for technology and limited domestic human resources. But the merger would need to be assessed for synergy, said Mr Piti.
According to a local media report, TMB chairman Rungson Sriworasat recently said a possible merger with KTB will be forwarded for discussions during the bank's board of directors meeting, which takes place next Wednesday.
The cabinet on Tuesday approved tax deductions and exemptions to encourage mergers among Thai banks in a bid to support domestic financial institutions and improve their ability to compete regionally.
A draft of a royal decree on the deduction of corporate income tax and exemptions from value-added tax, specific business taxes and revenue stamps have been approved by the cabinet to support mergers among Thai financial institutions.
The royal decree also requires relevant agencies to deduct related measures for banking mergers such as transfer fees and transfer of real estate assets.
Thai banks with the potential to compete in the region should have assets of at least 4 trillion baht, said Nathporn Chatusripitak, an adviser to the Prime Minister's Office minister.
The government will not force state-owned banks to merge, Finance Minister Apisak Tantivorawong said recently.
Mr Apisak also said Thailand needed large "champion" banks to be able to compete with foreign banks.
The tax deductions and exemptions to encourage mergers among Thai banks are predicted to cost between 600 million and 1.4 billion baht in foregone revenue.
Prakit Sirivattanaket, vice-president at Kasikorn Securities, said a possible M&A deal between KTB and TMB is unlikely to occur as there is no benefit from the deal, with both banks having similar business models.
Both banks, however, are state-owned financial institutions, with the Finance Ministry controlling major stakes, factors that could facilitate the negotiation processes, said Mr Prakit.
"But the question is how the Finance Ministry will benefit from the deal," he said.
Mongkol Puangpetra, head of research at KTB Securities, said a merger between KTB and TMB is possible if the Finance Ministry wants to create the largest Thai bank by asset size, but benefits from such merger remain unclear.
A new bank needs time to blend different business cultures, while investors in each bank have to evaluate share prices after a consolidation, said Mr Mongkol.
"The M&A process is not easy, so we think this merger is unlikely," he said.
