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Business deals

Thai banks agree to merge in sector's biggest deal in 6 years

Mid-size Thanachart Bank and TMB unite as Bangkok pushes consolidation

The merger between TMB and Thanachart Bank could trigger more financial mergers and acquisitions in Thailand, which is Southeast Asia's second-largest economy.

BANGKOK -- Thailand's Thanachart Bank and TMB Bank, the country's sixth- and seventh-largest lenders by assets, respectively, said on Friday that they had agreed to merge in the face of rising competition at home and across Southeast Asia.

The deal marks the first major Thai bank consolidation since Japan's Mitsubishi UFJ Financial Group bought Bank of Ayudhya in 2013, and could trigger a series of financial mergers and acquisitions in Southeast Asia's second-largest economy.

"The integration will furnish the new bank with enhanced capability to develop better products and services in the digital age," said TMB Bank CEO Piti Tantakasem at a news conference.

Thanachart Bank President and CEO Praphan Anupongongarch said, "As part of the new bank management team, we want to ensure that the merger benefits all stakeholders, especially customers, partners, employees and shareholders."

The merger has been under discussion since last year. In February, the banks signed a nonbinding agreement to merge.

Thanachart Bank CEO Praphan Anupongongarch, left, and TMB Bank CEO Piti Thantakasem unveiled the merger plan on Friday. (Photo by Masayuki Yuda)

Thanachart's assets totaled 1 trillion baht ($32.3 billion) as of June, according to central bank data, while TMB had 896 billion baht in assets. The combined bank will rank sixth in the country in terms of size, followed by Bank of Ayudhya.

The government has been encouraging Thailand's small and mid-size lenders to merge in order to become more competitive. "This merger is in line with government policy promoting consolidation in the financial sector to enhance the scale and improve market position, which will contribute to the country's financial stability and economy," said finance ministry official Chumpol Rimsakorn, who also attended the merger announcement.

Only a handful of Thai banks are big enough to compete with regional peers. The largest bank in Thailand, Bangkok Bank, ranks only sixth in the region by assets, with 3.05 trillion baht. By comparison, Singapore's DBS Group Holdings, the top financial institution in Southeast Asia, holds $413 billion in assets.

In April 2018, the then-military government approved a corporate income tax deduction and a value-added-tax exemption for banks that merge. The decision was part of the central bank's long-term plan to transform Thai financial institutions into regional players.

According to the two banks, the merger will yield a "larger customer base and strengthened market position" as well as a "larger investment pool to prepare for intensifying competition in the digital era."

They have yet to name the new bank or explain its digital investment plan, as they are currently focusing on completing the deal.

TMB Bank has 408 branches across Thailand, and Thanachart Bank has 498. Of these, 239 are within a kilometer of each other. The banks plan to consolidate branches that are close together as a way to cut costs, but do not plan any layoffs.

Netherlands-based ING Group -- TMB's main shareholder -- will own 21.3% of the new bank's shares, followed by Thanachart Capital at 20.4%. Thailand's finance ministry will invest at least 11 billion baht for an 18.4% stake, making it the third-largest shareholder. Canada's Nova Scotia Bank, which owned 49% of Thanachart Bank, will have a 5.6% stake.

The merger requires TMB to buy Thanachart Bank for 156 billion baht. TMB plans to raise 130 billion baht to cover the cost, of which more than 80% will come from issuing new shares. The remainder will be financed. Thanachart Capital will buy the newly issued shares for 44 billion baht.

TMB is currently listed on the Stock Exchange of Thailand, but Thanachart is not. By making TMB the purchaser, the new bank will maintain its listed status.

The merger is expected to be finished by the end of this year, with the entire consolidation completed by mid-2021.

Thanachart is currently the nation's top lender for auto loans, while TMB has a broad deposit base.

"It will take one to even five years to start seeing positive synergy from the merger," said Usanee Liurut, a banking sector analyst from AsiaPlus Securities. "At the moment, the market seems to be more concerned about the cost of the merger than encouraged by its merits."

The price of TMB Bank shares fell to 1.71 baht per share on Friday, 22% below their level at the start of the year and their cheapest price since September 2012.

The new bank will face challenges from the start as interest rates in Thailand remain extremely low. The Bank of Thailand announced a surprise rate cut on Wednesday, after raising interest in December 2018 for the first time in over seven years.

As the global economy slows, major central banks such as the U.S. Federal Reserve are turning dovish, making it difficult for banks to rely on lending for profits.

Moreover, the rapid development of financial technology has forced traditional banks to compete with tech companies and startups. Mobile payment services like Alipay and Line Pay, along with the emergence of digital currencies, are disrupting fee businesses such as money transfer, which were important sources of revenue.

Thai banks have yet to admit that these disruptions have hurt profitability, but they are feeling the pressure. Some have chosen to collaborate rather than compete with tech companies.

In July, Thailand's second-largest bank, Siam Commercial Bank, announced that it had invested in Indonesian ride-hailing startup Go-Jek, which is expanding its digital finance business. The tie-up is expected to boost Siam's digital services.

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