11 July 2024

Once dubbed as a sleeping partner, Thai commercial banks are set to experience numerous challenges next year.

Apart from the slower economy, an entry of digital technology has prompted Thai banks to further remodel their business in line with the evolution in the financial service system.

Next year could be tough for commercial banks to maintain their profitability as the Thai economy is set to grow at a slower pace than this year’s. The lower growth is attributed partly to the gloomy external trade environment.

Moreover, tech disruption has presented both positive and negative effects to companies as some outdated factories are forced to close down because they cannot adopt to changes. Thais become more cautious in their spending out of their concerns over their job prospects.

Meanwhile, the financial regulators are likely to continue tightening the financial service-related rules to protect the consumers after they implemented a series of macro-prudential measures to curb household debts this year.

For example, the Bank of Thailand has tightened the rules on auto finance and mortgage loans to ensure that commercial banks would approve loans at the amount that match the borrowers’ debt service ability.

Kasikorn Research Center predicts that loans within the Thai commercial bank system may grow at only 3-3.8 percent while net interest margin (NIM) may slow down to 2.70-2.80 percent, pressured by lower interest income and possible cuts in interest rates during 2020.

In addition, the slowing economy may drive up the non-performing loans in the commercial banking system to over 3.0 percent throughout 2020.

In 2018, the loans within the commercial bank system grew 5.7 percent compared to the previous year, according to the figures of the Bank of Thailand.

Digital age

Digitalization has, in recent years, reshaped the banking business. In fact, commercial bank business is among the most active sectors that have incorporated high-technology in their operations.

For example, some local commercial banks have already used artificial intelligence and data analytics to find their potential customers.

Also, some have used technology in daily service such as facial recognition to verify their customers instead of signature. The QR code payment has now become mainstream in line with Thailand’s goal to become a cashless society.

The financial evolution also leads to intensified competition from non-bank companies, which have made an inroad into the payment system such as TrueMoney Wallet and LINE Pay.

Traditional banks have to bear high costs of branches and the maintenance costs for their facilities such as ATM booths. The digital banking may be able to offer similar services with low cost online.

In the near future, the traditional banks may face new competition from the digital—only banking business. Even though the digital-only banking has not been popular in Thailand, partly because of high setting-up cost during the nascent stage, the industry agrees that the digital trend is inevitable.

Some commercial banks have already begun offering services via internet channels with technological application in parallel with the presence of their branches.

Meanwhile, some Thai banks have partnered with their banking agents to provide simple retail services such as deposits and payment at convenience stores and post offices to match the changing lifestyle of consumers.

Due to these challenges, commercial banks will next year have to further review the model of their business. For example, they may have to reduce the number of their branches and the ATM booths as consumers have increasingly expedited transactions online.

Also, banks will have to get ready to compete with or even collaborate with FinTech startups or e-commerce platforms to expand customer bases and generate new income via online platforms.

The number of banks may be smaller as the small and less competitive ones may be acquired by larger ones because big banks may be better equipped with financial resources and invest in new technologies to upscale their business.

Meanwhile, financial regulators are expected to closely monitor the evolution of electronic banking business and improve the oversight methods to ensure fairness to all. These are issues that the commercial banks will have to brace for next year.