The due diligence process for the merger of TMB Bank and Thanachart Bank (TBank) will not be completed during the incumbent government's rule, but the Finance Ministry will still increase its capital to prevent share dilution.
Completing the due diligence process will take some time, but there should not be any problems with the planned merger when the new government takes office as it is a straightforward case, said Finance Minister Apisak Tantivorawong.
If the new government decides not to raise capital, it will have to be prepared to explain the share dilution, said Mr Apisak.
TMB has entered into a non-binding memorandum of understanding to consolidate with TBank through an entire business transfer with an estimated transaction value of 130-140 billion baht.
According to the major shareholder structure of both banks, the Finance Ministry holds a 25.9% stake in TMB, while ING has a 25% stake. Thanachart Capital Plc holds a 51% stake in TBank and Canada's Bank of Nova Scotia owns the remainder.
The consolidated bank will be renamed, taking into consideration the commercial strengths of the existing brands of TMB and TBank after integration is completed.
Once completed, the merger will result in combined assets worth 1.9 trillion baht, making it the sixth largest bank by assets in Thailand's commercial bank industry.
The Finance Ministry must raise capital after the merger is completed to safeguard its 25.92% stake in TMB from being diluted.
After the ministry raises capital, the cost of shareholding for the ministry will fall to around 3 baht per share from the current 3.80 because the new bank will have higher efficiency.
Mr Apisak said investing in TMB shares is not a strategic investment as seen in the past. Shares held by the ministry will be diluted if it does not protect its stake, he said.
"If the ministry does not retain its rights, we would cause an impairment. But if [the ministry] raises capital and the share price rises, we could sell some shares to reduce our stake in case foreign or institutional investors are interested in buying," he said.
In the past, the ministry held shares of TMB primarily to maintain the stability of financial institutions during the 1997 Asian financial crisis, said Mr Apisak.
In separate news, investment in technology will cause changes to the financial industry and small banks are at risk of losing competitiveness if they fail to invest in technology, he said.
Investing in IT systems is also crucial for banks because their operations could be disrupted if they do not accelerate the process of IT system investment, said Mr Apisak.
Small banks are at a disadvantage to larger financial institutions for upgrading technology and IT systems because of lower investment capital, he said.