The Ministry of Finance (MoF) and the Bank of Thailand (BoT)
have jointly prepared a financial sector masterplan for
financial institutions to guide the development of the
financial sector over the next five to 10 years, which was
approved by the Cabinet on January 6 2004. An English version
of the masterplan can be found in the BoT website.
The masterplan sets out the following strategies:
Measures to broaden general access to financial
- promoting grassroots financial services;
- transforming Bank of Agriculture and Agricultural
Operatives (BAAC) into rural development banks; and
- encouraging existing financial institutions to increase
the level of financial services to low-income
Measures to increase efficiency of the financial
- Restructuring Thai financial institutions, by issuing
only two types of licenses to financial institutions that
accept deposits from the public:
- Full-service commercial banks. One type
will be allowed to open branches with no limit on number or
location, but must merge with at least one other finance or
credit foncier company. The other type will not be allowed to
- Retail banks, which may offer financial
services to retail customers and SMEs, subject to exposure
limit per customer and other conditions set by the BoT.
Credit foncier companies and finance companies will be
phased out, in favour of full-service banks and retail
- Restructuring foreign-owned financial institutions to
enable them to play a greater role. There will be two types
of foreign bank licences:
- Subsidiaries of foreign banks, which
will be allowed to open a certain number of branches.
- Full branches of foreign bank.
Stand-alone Bangkok International Banking Facilities (BIBFs)
will be encouraged to upgrade to full branches or subsidiaries.
Tax benefits for out-in transactions will be discontinued.
- One-presence policy. Currently, a financial group may
comprise a number of financial institutions of different
types. The new system of bank licensing will allow all
functions to be performed by one financial institution.
- Incentives for lending to retail customs and SMEs.
The masterplan lists a number of steps under "Streamlining
rules and regulations".
To implement the masterplan, MoF issued notifications on
January 30 2004 describing terms and conditions, and procedures
for application of new commercial bank licences. Local and
foreign financial institutions were invited to submit
applications for new licences under the masterplan before July
31 2004. Twenty-seven applications were received, and the
results will be announced by January 31 2005, according to a
According to the BoT, at least 10 new banks will be
established over the next two years, but the total number of
financial institutions will fall as a result of mergers and
downgrades. Effective September 1 2004, there was a merger
between Thai Military Bank, DBS Thai Danu Bank and the
Industrial Finance Corporation of Thailand, under the name Thai
Military Bank Public Company Limited.
In the aftermath of the 1997 Asian financial crisis,
Thailand began an ongoing law and regulatory reform programme
aimed to address outstanding issues confronting efforts to
stabilize and improve the resulting crippled economy. These
reforms focused specifically on reversing the depletion of net
international reserves, correcting systemic problems plaguing
the financial sector, counteracting a liquidity shortage that
undermined the stability of the real estate sector and resulted
in high levels of non-performing loans and curbing general
regional economic turmoil. The recovery has largely been the
result of fiscal stimulus and consumer spending, which has
produced increasing government debt that, while large for the
region, is still small in comparison internationally.
Commercial banks and finance companies are subject to two
principal laws and numerous regulations and notifications:
- Commercial Banking Act, BE 2505 (1962), last amended by
Emergency Decree Amending the Commercial Banking Act (4), BE
2541 (1998); and
- Act on the Operation of Finance, Securities and Credit
Foncier Businesses (1979), last amended by Emergency Decree
Amending the Act (5), BE 2541 (1998).
The BoT, in conjunction with the MoF, oversees the
administration of these two Acts.
Two other important regulatory bodies are: the SEC, which
was established under the Securities and Exchange Act, BE 2535
(1992) and has supervisory power over securities companies; and
the Department of Insurance, which has supervisory power over
Draft Financial Institutions Business
After the 1997 Baht devaluation, Thailand signed an
assistance agreement with the IMF, which included banking
sector reforms. When Thailand left the IMF Assistance Programme
in June 2000, one of the remaining legislative reform
initiatives was to enact a new financial institutions law. This
law was in the final stages of enactment in August 2002. It
would have unified the regulatory framework and strengthened
the BoT's powers of supervision, monitoring and
The bill defined financial institution business as
commercial banking business, finance business and credit
foncier business. The bill would have permitted current
regulators to assign to the BoT supervision of specialized
financial institutions, such as the Industrial Finance
Corporation of Thailand and the Export-Import Bank of
The bill retained the existing ceilings on foreign ownership
(25%) and foreign directors (one-quarter), but allowed
relaxation on a case-by-case basis.
The bill failed to clear Parliament in 2002 due to the
Senate's insistence on including a cap of interest rate spreads
over cost of funds. The bill will need to be adapted to the
masterplan before it is resubmitted to the parliament.
Recent regulatory developments
Saddled with large numbers of non-performing loans,
Thailand's banking sector struggled in the fall-out of the
financial crisis. Debt restructuring was facilitated by a newly
created Bankruptcy Court (1999), the introduction of
reorganization provisions under the Bankruptcy Act and a
contractual debt-restructuring scheme promoted by the Bank of
Thailand. A substantial number of non-performing loans were
transferred from commercial banks to asset management
companies, and FIDF guaranteed deposits and liabilities of the
remaining financial institutions.
The last new banking laws were enacted in 2002:
- Act on Operation of Credit Information Business, BE 2545
- SMEs Development Bank of Thailand Act, BE 2545
- Islamic Bank of Thailand Act, BE 2545 (2002).
Pending new legislation includes a Deposit Insurance Bill
(pending in the Fiscal Policy Office, MoF) and the Financial
Institutions Business Bill.
As of May 2004, 378 requests for business re-organization
had been filed, 316 requests had been approved and 230
re-organization plans had been approved.
A total of 16,966 corporate debtors were listed with CDRAC
for the contractual debt restructuring process. As of April 30
2004, 13,595 corporate debtors were in the restructuring
- 11,097 corporate debtors were successfully
- 2,188 corporate debtors were unsuccessfully
- 310 corporate debtors are in the negotiation
- 89 corporate debtors are being contacted to participate
in creditor-debtor meeting; and
- 3,282 corporate debtors were declared bankrupt or
transferred to Thai Assets Management Corporation
The tax incentive applicable to debt restructuring under
Section 90 of the Bankruptcy Act and the BOT scheme initially
were to expire on December 31 1999 but were extended until 31
December 2004 (Royal Decree 418).
Albert T Chandler graduated from
the University of California with an honours degree in mining
engineering in 1959 before completing his LLB at Harvard Law
School in 1964. Since 1969, he has been a legal adviser in
Bangkok and is a senior partner at Chandler & Thong-ek Law
Offices Ltd, where he specializes in business law, mineral law,
international transactions, project financing and investment
projects. Chandler is also a lecturer at the Law Faculty of
Chulalongkorn University in Bangkok.
Chandler & Thong-ek has a
substantial project financing practice in Thailand, and
received IFLR awards (project finance, and mergers and
acquisitions) for best Thai law firm for 2000, 2001, 2002 and
Chandler & Thong-ek
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