Citi sees Thailand potential as regional banking hub
Outgoing country head says reforms needed for sector to meet ambitions
PETER JANSSEN, Contributing writer
BANGKOK -- Thailand has the potential to become a regional banking hub if it pushes through some more reforms, according to Darren Buckley, outgoing Citi country head for Thailand, Myanmar, Cambodia and Laos. "A strong regional banking hub here is very possible given the amount of economic activity here in ASEAN's second-largest economy," Buckley told the Nikkei Asian Review.
However, the country would need to further liberalize several areas, such as capital flows, to compete with the region's existing financial hubs in Hong Kong and Singapore, local business leaders say. In its favor, Thailand has a strong manufacturing base, due to three decades of robust foreign direct investment, its own growing list of regional multinationals, and a very capable banking regulator in the central bank, the Bank of Thailand.
The Thai government acknowledges that turning the kingdom into more of a financial hub, part of its "Thailand 4.0 scheme" to push the country up the value-added ladder, has a way to go. But the government's drive is already helping to shake up the country's banks, Buckley said.
"What's going to be revolutionary for the Thai banks is what's happening to them now from the [government's] national agenda perspective and digitization," said Buckley, who has just wound up six years heading Citi's operations in Thailand. He is heading for Shanghai, to head the bank's consumer business in China.
As the government steps up its digital push, Thailand's Finance Ministry launched PromptPay earlier this year, allowing registered Thai nationals to make payments through their mobile phones at reduced transfer fees, and is working on an e-verification process that will make "wet signatures" an anachronism. The service promises to make bricks-and-mortar bank branches (there are more than 8,000 nationwide) a lot less popular.
"That is going to drive the next wave of innovation and significant change in the banking system," predicted Buckley. Digitization could also level the playing field between foreign and local banks, he noted. "It has potential, and it could be beneficial for us."
Citi, a giant in close to 100 markets, is far from being Thailand's largest bank. But what it lacks in size, it has made up for with innovation over its past five decades in the kingdom.
Within the last 18 months alone it has introduced "voice biometrics," allowing customers to use their voice as their password when calling telephone banking service CitiPhone, and it was the first bank to hook up with Line, the most popular chat-messaging platform in Thailand, for online banking transactions.
"We are building capabilities in Line itself, enabling you to do banking and get access to information real-time in an eco-system you're comfortable with," said Buckley. "It's about helping customers to bank the way they want to bank, conveniently and simply," he added. What is remarkable is not the service itself, but that Citibank was the first to offer it in Thailand.
Thailand's banking hub ambitions are backed by members of the Thai private sector, especially corporate giants such as PTT, the national oil company; Siam Cement, Thailand's leading industrial conglomerate; Charoen Pokphand Foods, the leading agro-industry conglomerate; and Thai Union Group, the world's leading canned tuna exporter, which has been on an overseas buying spree for the past decade.
Thai Union chief financial officer Joerg Ayrle said of the financial hub vision: "I think it's very much possible, if we could relax some of the still existing boundaries." Thai Union has spent more than $2 billion on overseas acquisitions since 2010, relying on a combination of share issues, bonds and bank loans, chiefly from Thai banks.
Thai Union created a regional treasury center in Bangkok more than a year ago after the government improved tax incentives for companies setting up international headquarters in the country. There are 22 such treasury centers in Thailand now, allowing local and foreign companies to centralize their cash management for overseas operations.
Citi competes keenly with many foreign banks in Thailand for institutional business supporting global multinationals and large Thai corporates. At the same time, it is one of the few global banks still in the consumer banking business in Thailand, chiefly via its credit card service and wealth management offerings, which are popular among affluent Thais. "Our strengths are very much in the credit card space, and in wealth products, both aimed at globally minded, higher net worth customer segments," Buckley said.
HSBC and Standard Chartered, two long-timers in Thailand, have both sold off their retail banking operations in the past six years. Foreign banks, although allowed to operate freely in Thailand, face certain restrictions, such as limitations on their branch and ATM networks. These, combined with the growing competitiveness of the Thai banks, have made it hard for the global banks to operate in the retail space. But digital developments for Citi mean a limited branch network is no longer such an issue.
Acquisition of Thai banks has been proven as another means of capturing more market share. Bank of Ayudhya, the fifth-largest Thai bank, is owned by Japan's Mitsubishi UFJ Financial Group, which bought a majority 72% stake in the bank for $5.3 billion in December 2013. The BOT's decision to approve the buyout was daring, since most foreign stakes in Thai banks are limited to a 49% ceiling. Japan's role in the Thai economy is huge, with Japanese-owned companies accounting for about 50% of all manufacturing.
"I think that allowing a Japanese bank like that to come in and take a large strategic stake in one of the big five domestic banks was actually quite far-sighted," said Buckley. "It opens up the door for Thailand to potentially become, with more reforms, a regional banking hub."
The BOT meanwhile has been vigilant in strengthening the local banks since the 1997 Asian financial crisis, which left the financial system in tatters, forcing many banks to seek foreign partners and others to merge. The system today is in relatively good shape, although nonperforming loans are on an upswing. The largest banks are well capitalized, liquid and provide a full range of services.
There is more to do, in order to realize the country's regional finance ambitions, Thai officials and business leaders acknowledge. "If you compare us to Singapore, we are not quite there yet, but we are getting better," said Pakorn Preetathawatchai, head of the corporate strategy and finance division at the Stock Exchange of Thailand. The exchange estimates that listed companies on the Thai bourse spent 185 billion baht ($5.6 billion) in overseas foreign direct investment last year, more than double the 75 billion baht spent in 2015.
While Citi has not set up branches in Cambodia, Laos and Myanmar -- the real frontier markets -- it is keeping an eye on them -- Myanmar in particular. "Myanmar we are interested in for the long term," Buckley said. Under the previous government of President Thein Sein, Citi was appointed as adviser on Myanmar's sovereign rating. The process stalled during the transition period to the elected government under de facto leader Aung San Suu Kyi, but appears to be on track again under a recently established committee.
Citi's willingness to provide the sovereign credit advisory service highlights the likelihood of prospects ahead when Myanmar companies eventually seek international credit ratings to tap international capital. "As Myanmar looks to develop its economy, it also needs to get a stronger, better capitalized, more liquid banking sector, and other sectors need funding, and it's not going to come from the banking sector alone. There's not enough balance sheet at the local banks to be able to help them develop," Buckley said.
While other western global banks have been trimming their Asian portfolios, Citi is still bullish on the region, which accounts for almost a quarter of the group's revenue and net income, Buckley estimates. "Citi is not shy about expanding our business here in Asia to support our clients," he said.
China, Buckley's new posting, presents fresh challenges. "I think we have many advantages and bring real value to China on the institutional side of our business," Buckley said. "We help facilitate inward investments through foreign multinationals looking to invest in places like China and we help emerging national corporates to expand internationally through advisory, mergers and acquisitions, access to capital markets, and so on ... That's the strength that comes from our unique global network."
More challenging will be tapping China's consumer banking market, which is going through its own disruptions. "What's happened in retail banking in China has been revolutionary," said Buckley, citing the rise of AliPay, WeChat and mobile wallets. "What's happening in China is eventually going to make its way around all other countries in the world. By having a consumer business in China, we're getting a seat at the table to try to understand and learn how to compete in that type of digital environment, and we're partnering with these types of e-commerce giants now to drive our digitization strategy in China."
On the question of potential threats that could derail Asia, Buckley is not as worried about China-U.S. tensions or the Middle East and Islamic terrorism as he is about Pyongyang. "Honestly, if North Korea gets nuclear weapons we are going to see changes in Asia that we've never envisioned today in terms of personal freedoms. Any escalation of tension on the Korean peninsula would likely have an overwhelming impact on all of us in Asia."