Monday, January 6, 2020

Research On The Banking System In Thailand Finance Essay - Free Essay Example

Sample details Pages: 7 Words: 1991 Downloads: 9 Date added: 2017/06/26 Category Finance Essay Type Argumentative essay Did you like this example? Thailand was regarded as Asias Tiger in 1990s, where the economic situation is thriving. Thailand had a strong growth in Gross Domestic Capital of 11.5% from year 1987-1996. However, Thailand was seriously affected by the Asian Financial turmoil. Don’t waste time! Our writers will create an original "Research On The Banking System In Thailand Finance Essay" essay for you Create order It is suggested that the great fall during Asian Financial turmoil is mainly caused by the poor monitoring and control over of various financial institutions there, mainly the commercial banks. Also, the recent political instability has driven lots of investment away from Thailand. Therefore, in the following parts, I will investigate the financial institutions, with the focus of the Banking sector. In this essay, we are going to look into the history of the banking sector in Thailand and some of the features of the banking institutions there which hopes to have an overview of the countrys banking sector. The History of the Banking System in Thailand The Thailand banking sector once had a close relationship with the Hong Kong and Shanghai Banking Corporation (HSBC). In 1865, the HSBC sent its staff into the capital of Thailand, Bangkok. Later in 1888, a new branch was set up in Thailand by HSBC. At that time, HSBC was the pioneer bank to have branch there to facilitate the capital movement in Thailand. Subsequently, the Chartered Bank followed in 1894, and in 1897 Banque de I Indochine (a bank from France) also built branches in Thailand with an aim to facilitate international trading with Thailand (Blanchard, 1958). This was the time the foreign banks enter the Thailand market. The officially first Thai bank, which is named as the Siam Commercial Bank, was actually formed in year 1906 by Chinese. After that, more and more local banks were being established which eventually captured back the market share from the foreign banks. In order to support and protect the local banks, Thailand had adopted a policy which restricts foreign bank to own only one branch in Thailand after the Second World War. This policy limits the growth of the foreign banks which in return provides opportunity for local bank to grow. Since the rapid economic growth in1960s brings an opportunity of facilitating economic investment and funding to support the improvement of banking system. A rapid development of banks in Thailand is resulted, and in the peak period, there are around 3,000 banks in Thailand. Introduction of the Banking Institutions in Thailand The banking system in Thailand can be divided into the following: Bank of Thailand(BOT), the central bank 12 domestic commercial banks and 18 commercial banks from other countries 27 international banking facilities (IBF) 5 specialized banks, including the Small and Medium Enterprise Development Bank of Thailand, the Government Saving Bank (GSB), the Bank of Agriculture and Agricultural Cooperatives (BAAC), the Government Housing Bank (GSB) and the Export-Import Bank of Thailand (EXIM Bank) Most of the IBFs in Thailand are controlled by the commercial banks in Thailand too. Among the twenty-seven IBF licenses, 8 is under the control of local commercial banks while 15 are under the control of foreign commercial banks. In the following parts, we will now explore the banking financial institutions respectively. The Central Bank in Thailand An organization which performs similar duty of the central bank was formed in 1939, named the Thai National Banking Bureau which is under a department of the Ministry of Finance in Thailand. Later, the Bureau was converted into a central bank (the Bank of Thailand, BOT), after the Bank of Thailand Act in 1942 when Thailand learnt from the successful experience of other countries powerful central banking system. The responsibilities of the Bank of Thailand include the following: To issue currencies that are in circulation in Thailand and other security documents in Thailand. The central bank has a monopoly banknotes-issuing as the sole-issuer. To Maintian monetary stability and formulate monetary policies by the following (BOT, 2007): mobilize the deposits, determine the interest rate for loans to financial institutions, trading foreign exchange and exchanging for the future cash flow, borrowing foreign exchange in order to maintain the monetary stability, borrowing money in order to implement the monetary policy, trading securities as necessary and exchanging for the future cash flow in order to control the money supply in the countrys financial system, borrowing or lending the securities with or without returns. Provide banking services to the government and act as the recorder of bonds issued by the government Provide banking services for the financial institutions, importantly acting as the last resort for financial instit ute Supervise and monitor financial institute by requesting explanation of report of the banks operation. Build or back the payment system control, monitors, and check the financial situation and porformance, and risk management system of the financial institutions in order to promote financial institutions stability. (BOT, 2008) handle and control Thailands foreign exchange rate and manage assets in the currency reserve according to the Currency Act. (BOT, 2008) express Thailands views and fight for Thailands interest in the international platforms including the IMF and Asian Development Bank The central bank of Thailand has an irreplaceable role in financial institutions supervision and monitoring the economics growth with useful monetary policies. Both on-site and off-site methods are used for monitoring. On-site methods refer to sudden tangible inspections performed at least once a year on the commercial banks. Off-site methods refer to investigating the wee kly, monthly, or annually reports collect from the existing financial institutions on various kinds of operations. (Supervision Group Policy, Bank of Thailand, 2002). It is believed that the tight supervision help to achieve a controlled level of GDP growth in a safety range of 5% which is close to the international standard. This helps to build confidence that Thailand will not make the same mistakes they did before the Asian Financial Crisis (Poor surveillance in banking sectors). Thailand Commercial Banks review The dominating group in the Banking sector is the commercial banks. There are a total of14 Thai Banks and 16 Foreign Banks taking control of 70% of the local household savings and credits in the whole banking system which is approximately 2,800 million dollars. 79 percent of the money was in the form of bill, loans, and overdrafts. Commercial banks lending are comprised 25% on manufacturing, 20%in wholesale and retail trade and 11% in the form of working capital financing, and imports and exports respectively. Currently, the dominating commercial banks are the following: The Bangkok Bank, The Thai Farmers Bank, The Krunk Thai Bank The Siam Commercial Bank. In the 1990s, the above four banks own almost 70% of the assets in the banking system and which is equivalent to 75% of total assets in Thai banking system in private banks. The functions of the commercial banks in Thailand includes the following Offers time deposits, saving deposits and Current deposits. issues certificate of deposit, provides mortgage, provides loans to foreigners and provides loans to meet domestic demand of loan, trades financial securities in the foreign exchange markets The sources of funding of the Thailand banking system are mainly from deposits, which is different from Hong Kong relying heavily on inter-bank borrowing. Control on Commercial Bank After the passing of Commercial Banking Act, Commercial banks have to follow strict regulations imposed by the local government. They also are required to get permission from the Ministry of Finance (MOF). Regulations for the maintenance of capital funds and reserves are created because of the Act. Since then, the commercial banks are restricted to maintain destined amount and fixed assets type in the country. (BOT 2008) it is regulated that the bank must transfer at least 15% of earnings into reserves. Dividends are limited to 15% of reserves unless the amount of reserves is greater than 60% of their paid-in capital. The banks must maintain a capital adequacy of approximately 10% to the two tiered capital standard regulated by the Basle Committee Capital Accord in 1988. After the Asian Financial turmoil, the regulated reform of banking sector had attracted many foreign banks and capitals entering into Thailand. Foreign banks are found out to be more competitive when compared to local banks with better management. It is believed that the reform is beneficial to the banking sector. The comparative advantages of the foreign banking were brought into Thailand by the foreign investors, and it also flows with capitals from other countries. The competitive environment can help customers to have a better service in the future. Overview of the Other Specialized Banks in Thailand There are 5 specialized banks and they are: Bank for Agriculture and Agricultural Cooperatives It is formed at 1966. The aim is to provide credit for farmers who find it difficult to make loan from commercial banks or the farmers cannot afford to pay the high interest in financing. The bank promotes agricultural industry by offering financial assistance to the farmers. Nowadays, it is regarded as a diversified rural bank which provides a large variety of financial services. The Small and Medium Enterprise Development Bank of Thailand It is established to assist the growth of small and medium enterprises by giving them financial support such as loans, venture capital or other consultancy service. The Government Saving Bank GSB was established in 1913. The GSBs original use was to gather and provide funds to support the large amount of government deficits. Nowadays, GSB focus more on the private sector. The Government Housing Bank GHB was formed in 1953, which specializes in providing mortgage lending to the targeted low or middle income group in order to provide funding for them to but houses at a lower interest. It also provides long-term mortgage loans for individual borrowers and construction loans for property developers to assist their residential building development projects. Export-Import Bank of Thailand (EXIM Bank) Established in 1993, provides financial aid for international trading and foreign investment which aims to help to boost Thailand exports and attract investors. If offers direct loans and guarantees loans, insurance on exports and consultancy service to Thai exporters and investors. The predicted Trend of the Thailand Banking System The Asian Financial Crisis helped to spot the problem of the absence of surveillance and monitoring in Thailand Banking system after 1997. With the new law requirement of handling in operational reports about transaction to the central Bank and the regulating body, the malpractice in banking sector is spotted and reforms are being made to prevent the problem. The fierce competition in banking sector brought from the entry of foreign bank in the banking sector in Thailand heat up the operational changes in terms of providing a wider source of capital, improving the technological level, updating management on operations with a focus of marketing strategies. In order to be customer friendly, many banks has increased the coverage and scale of Automatic machine use (ATMS) and build more branches in mass transit and supermarkets, to attract real estate purchases to use the service, flexible mortgage-loan package are provided in lower interest rate. To cope with the competitions, lo cal Thai banks are focusing more on customer relation management and also internal managing system. For example they have formed an e-banking systems and installing more ATM machines. We can foresee that with the improved management focusing customer perspectives, more customers are willing to use the banking system in Thailand. With the external monitoring system improvement and internal operation improvement in the banking sector, we can see the opportunities in Thailand banking sector and the potential of growth is high. Conclusion After looking into the different banking sector in Thailand, we can conclude that the Thailand banking system is developing in a moderate pace when compared to other banking systems in the world. As mentioned before, we can conclude that Thailand government has done quite a lot in improving the Banking sectors there. However, as the political situation In Thailand is very unstable, we cannot foresee an opportunity that the banking sector will grow as the instability will drives away foreign investments and capital and at the same time, affecting the currency and economics activities such as real estates performance, which is heavily-linked with the banking industry. Therefore, if the government needs to improve the banking sector, it must keep an eye on the political and social stability.

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