Financial Sector Development
Sustainable Growth, Regional Balance, Social Development for Poverty Reduction
Bangkok, October 26, 2006Renuka VongviriyathamGE Money Retail Bank
More balance financial sectorNo. of financial institutions supervised by BOT declinedFinancial strength of Thai banks improvedLoan growth in line w/ econ growth
Thai Financial Sector: More Resilient to Shock
Financial Strength of Thai Commercial Banks
0%
10%
20%
30%
40%
50%
60%
70%
80%
1998
1999
2000
2001
2002
2003
2004
2005
1H06
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
12%% of (risk) assets
% Reserve to NPLs (LS)
% NPLs to Loans (LS)
ROA (RS)
Tier 1 (LS)
Pre-crisis
Jun-97Dec-02 Dec-04 Oct-05 Jan-06
Domestic Private Banks 14 6 [1] 6 8 [6] 10 [9]
Domestic Private Banks (with the majority foreign ownership and control)
0 4 [2] 3 [5] 4 [7] 4 [10]
Foreign (single branch) Banks 14 18 18 18 17State-owned Banks 1 3 [3] 3 3 3 [11]
Total Commercial Banks 28 31 30 33 34Finance Companies 91 19 18 13 9 [12]
Credit Foncier Companies 12 6 5 5 4 [13]
Specialized Financial Institutions 7 9 [4] 8 [5] 10 [8] 10Total Financial Institutions 138 65 61 61 57Stand-alone IBFs of Foreign Banks 17 7 4 2 0Total 155 72 65 63 57
Source: BOT & WB’s estimate
Source: BOT & SEC & WB’s estimate Source: BOT & WB’s estimate
Financial Sector Breakdown
0%20%40%60%80%
100%
19
96
19
98
19
99
20
02
20
03
20
04
20
05
1H 2
00
6
Total Bond MarketStock marketLoans from financial inst .
Major Reform ActionsSeveral Master Plans being implemented
Financial Sector Master Plan (2004-2009); Capital Market Master Plan II (2006-2010); and Insurance Master Plan (2006)Master Plan for Grass Root Financial Services (draft)
BOT’s supervisory policies, procedures, practices being strengthened & more transparentSome improvement in contract enforcement regime
Formal out-of-court mediation framework establishedSpecial Bankruptcy Court establishedLegal execution process streamlined to expedite auctions of foreclosed assets
Credit Bureau in operations and governing law amendedCapital market development
New Public Debt Law enacted (2005); Bond market information centralized; a central depository agency created Derivatives Law enacted; TFEX launched its equity future in 2006
Deregulation of consumer finance market
Reform GapsLegal reform for contract enforcement and secured transactionBanking law & Central Bank lawLimited deposit insurance – to enhance market disciplineAmendments to Public Limited Companies law; Securities and Exchange law; Insurance Industry lawSupervision of financial conglomerate and insurance industryPolicy direction for state-owned financial institutions and its implementation (incl. risk management & CG & supervision)Restriction on issuance of gov’t securitiesRestriction on utilization of Credit Bureau information
Looking in Detail: Resiliency to Shock not Tested
Performance variedLarge private banks capable of weathering economic shocksSmall players need to strengthen their franchises to compete
NPLs and ReserveJune 06
-
2
4
6
8
10
12
14
16
18
20
Ba
nk
A
Ba
nk
B
Ba
nk
C
Ba
nk
D
Ba
nk
E
Ba
nk
F
Ba
nk
G
Ba
nk
H
Ba
nk
I
Ba
nk
J
Ba
nk
K -
20
40
60
80
100
120NPLsReserve coverage
% of Loans % of NPLs
Source: FitchRatings; Phatra Securities
Source: FitchRatings; Phatra Securities Source: FitchRatings; Phatra
SecuritiesInterest Spread of Thai Commercial
Banks
CapitalJune 06
0%
5%
10%
15%
20%
25%
Ba
nk
A
Ba
nk
B
Ba
nk
C
Ba
nk
D
Ba
nk
E
Ba
nk
F
Ba
nk
G
Ba
nk
H
Ba
nk
I
Ba
nk
J
Ba
nk
K
% of Loans
Areas for Improvement
Reasons for Reduction in Headline NPLs
0
200
400
600
800
1000
1200
Debt rest .(net of
reentry NPLs )
Reclassifiedas PLs
Transfer toAMC
Write-off Others incl.principle
repay .
Bill
ion
Bah
t 18%17%
25%
13%
27%
Resource allocation
Efficiency; credit risk
Source: BOT & WB’s estimate
Source: BOT & WB’s estimate
Source: BOT & WB’s estimate
Source: BOT & WB’s estimate
Asset quality
Number of Population per Branch ofBanks and SFIs (BAAC, GSB, and GHB)
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000P
erso
ns
per
bra
nch
Bangkok
Central
North South
East
Northeast
Thailand's Average
Access to finance
MLR minus 3m Deposit Rates and NetLoan Spread of Thai Commercial Banks
-1
-1
2
3
4
5
6
7
8
Jan
-91
Jan
-92
Jan
-93
Jan
-94
Jan
-95
Jan
-96
Jan
-97
Jan
-98
Jan
-99
Jan
-00
Jan
-01
Jan
-02
Jan
-03
Jan
-04
Jan
-05
Jan
-06
Percent
MLR - 3m Deposit Rates
Net Loan Spread
Share of Financial Inst's Loans
0%20%40%60%80%
100%1
99
6
19
98
19
99
20
02
20
03
20
04
20
05
1H 0
6
finco and credit foncier companiesforeign banksprivate commercial banksstate commercial banksSFIs
Looking into the FutureSaving for retirement & growth
Are we saving enough?How to increase return on saving?Not only boost saving but not waste itInstruments
More efficient financial intermediaries
Balance bet. efficiency and stabilityInfrastructure & legal frameworkMarket mechanism & supervisionEffective exit mechanism
Financial service liberalizationUnavoidable When and how?Prepare for increase in volatility
Access to financeSMEs Low income HH
Demographic Trend
0%
20%
40%
60%
80%
100%
1996 2000 2005 2010 2015 2020
60+
50-59
30-39
20-29
0-19
Source: NSO & WB’s estimate
Domestic Saving to GDP Ratios
0
5
10
15
20
25
30
35
40
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
as %
of
GD
P
Gross domestic saving to GDP ratioHousehold saving to GDP ratioCorporate saving to GDP ratio
Source: NI 1980-2001 and NI 2004
Appendix
WB’s CDP-FC Program
Launched in April 03Subsequent to crisis responded assistance and CDPC – both emphasized short-term structural reform to cope with the impact of the financial crisisGeared toward medium-term issues of enhancing competitiveness of the financial and corporate sectorsConcluded in June 06
The Country Development Partnership (CDP) is a knowledge-based partnership that provides support
in terms of policy advice, third party technical assistance, and capacity building in response to the
needs of the authorities.
CDP-FC: CDP Financial and Corporate Sector Competitiveness
CDPC: CDP Competitiveness
Strengthening financial sector strategy and structureEnhancing supervision and regulationImproving the speed and quality of corporate debt restructuringEnhancing intermediation on a risk-adjusted basisImproving corporate governanceDeveloping capital markets
CDP-FC’s Six Components
CDP-FC’s End OutcomesPromote sustainable growthDecrease vulnerability, frequency, and costs of downturnsImprove resource allocation to most productive uses Ensure access to assets and income opportunities for all segments of society
CDP-FC’s Intermediate Outcomes
1. Strengthen the Financial Sector Strategy and Structure
2. Enhance Supervision and Regulation
3. Improve the Speed and Quality of Corporate Debt Restructuring
4. Enhance Intermediation on a Risk Adjusted Basis
5. Enhance Corporate Governance
6. Develop Capital Markets
Strengthen the financial sector strategy and structureImprove the depth and efficiency of the financial sector Enhance market discipline of deposit taking financial institutionsIncrease access to financial services to SMEs and low-income household
Enhance supervision and capacity of supervisors for financial institutions Improve framework to supervise financial conglomerate and better cooperation across regulatory agenciesEnhance disclosure by financial institutions
Improve speed and quality of corporate restructuring via TAMC Improve the legal regime for credit enforcementImprove out-of-court debt restructuring regime
Enhance level playing field between state and private financial institutions as well as between small and large institutionsStrengthen information infrastructure
Enhance corporate governance, disclosure, and accountability of Thai firmsImprove accounting and auditing standards and professionalsStrengthen the oversight and the accountability of the board of directors of public companiesStrengthen shareholders’ right
Enhance the depth and efficiency of domestic capital market as alternative sourceImprove market liquidity and transparencyPrimary market mechanism strengthenedThe quality of supplies improvedEfficiency of the trading and the clearing & settlement platforms for securities trading strengthened Improve risk management mechanism for market players