Thai banks told to focus on tech as returns wane

Thai banks told to focus on tech as returns wane

Thai banks are being urged to ramp up their technology transformation efforts to enhance their income after a study found they had the lowest return on equity (ROE) ratio in the region, despite maintaining strong competitiveness compared with their regional peers.

Speaking at a seminar entitled "Banking Transformation Trends Regionally" on Tuesday hosted by Fitch Ratings Thailand, Vorapak Tanyawong, vice-chairman at Finansia X and senior advisor for McKinsey, said several banks in the region, particularly Indonesia and Vietnam, have significantly advanced their technology development.

As these two nations have large populations, including young adults, as well as robust advancements in technology, they face fewer constraints in securing tech workers for both the real sector and banking industry compared with Thailand, said Mr Vorapak. This technological progress played a pivotal role in fostering the development of the banking business in these countries, he said.

Mr Vorapak said the ROE of large regional banks is in the double digits, in contrast to single digits for large Thai banks.

For instance, Singapore's large banks posted ROE ratios ranging from 13.5% to 17.2%, while those in the Philippines ranged from 14.4% to 23%, and Vietnam banks tallied between 14.9% and 21.7%.

Conversely, Thai banks hovered from 8% to 9.9%.

"Large Thai banks historically maintained double-digit ROE over the past decade. However, mounting non-performing loans have compelled local banks to allocate higher provisions for loan losses, driving down the ROE ratio of the domestic banking sector," he said.

Thai banks still exhibit strong financial conditions, competitiveness and credit ratings compared with their regional counterparts. Fitch's credit ratings for large Thai banks range from BBB to BBB+, surpassing those of Indonesia and Vietnam, which are at BBB to BBB-, and BB+, respectively. Major Singaporean banks have an average credit rating of AA-.

Mr Vorapak said the robust infrastructure of the local banking industry bolsters its competitiveness. Thai banks have expanded their operations into regional markets in pursuit of greater business opportunities and enhanced profitability.

In a related development, Jindarat Sirisithichote, associate director for financial institutions at Fitch Ratings Thailand, said the local banking sector is expected to have positive results in 2024, building upon momentum from 2023. Thai banks are projected to maintain steady net interest income throughout the year, given the Bank of Thailand's neutral policy rate. Fitch expects the central bank to maintain its policy rate in the first half this year, making potential rate cuts in the latter half.

Ms Jindarat said loan growth should improve this year as the economic recovery persists after the pandemic.

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