BANGKOK -- Fourteen Thai banks will join hands to develop a shared trade finance platform based on blockchain technology, the central bank said Monday.
To start with, the banks including the big four -- Bangkok Bank, Krung Thai Bank, Siam Commercial Bank and Kasikornbank -- are scheduled to launch electronic letters of guarantee on a shared blockchain platform. The service will be tested in a regulatory sandbox and come online by September.
Letters of guarantee are contracts issued by banks on behalf of their clients to guarantee any payment obligations the client has made to trade partners. According to Kasikornbank, 500,000 letters worth more than 1.35 trillion baht ($43 billion) were issued through Thailand's commercial banking system in 2017, up 8% on the year.
The system was initially launched by Kasikornbank in collaboration with U.S. computing company IBM last July. It is built on a distributed ledger framework called Hyperledger Fabric provided by the Linux Foundation. State enterprises are already using letters of guarantee issued through the system, according to the bank.
The group would be similar to the Digital Trade Chain consortium that was formed last year by seven European banks such as Deutsche Bank and HSBC to develop a shared trade finance platform using blockchain.
"With this infrastructure sharing, banks do not need to invest on their own," Bank of Thailand Gov. Veerathai Santiprabhob told reporters Monday. "Interoperability enhances efficiency, reduces costs in our financial sector and addresses the needs of the consumer and the business sector."
Issuing letters of guarantee in Thailand has required much paperwork and a lengthy procedure that can take days. The new blockchain system will digitize the documents and shorten the process to as little as 30 minutes.
Initially, the blockchain service will cover letters of guarantee issued for bidders in state-owned enterprise auctions and other domestic trading. Seven corporates, including the state-owned Electricity Generating Authority of Thailand and industrial conglomerate Siam Cement Group, are set to use the system. The companies will be able to store their suppliers' letters of guarantee using the cloud system and obtain updated documents whenever they want.