Foreign participation in the Thai banking sector has been limited through a 25% foreign ownership cap in Thai banks. The Financial Institution Business Act, BE 2551 (2008) relaxed this restrictions somewhat and allowed for foreign shareholders to hold up to 49% of a financial institutions' shares, subject to authorisation by the Bank of Thailand, given on a case by case basis.
Where necessary for the performance or security of a financial institution or the financial system, the Minister of Finance was empowered under the Act to provide for an exemption, enabling foreign participation in a Thai bank to be more than 49%.
In February 2010, ICBC was granted an exemption by the Minister of Finance, to hold a 97% stake in ACL Bank. Previously, in 2009, the Minister of Finance has also allowed CIMB Group to hold a 93% share in BankThai Bank.
Other international banks in Thailand primarily operate by setting up branch offices in Thailand. Currently 15 foreign banks have representation through a branch office in Thailand.
In order to broaden general access to financial services and increase their efficiency, the Bank of Thailand and the Ministry of Finance implemented, in 2004, a two-phase financial sector master plan (FSMP). Phase I of the FSMP was completed in 2009 and focused on simplifying the financial institution licensing regime to increase efficiency and regulatory arbitrage.
Phase II of the FSMP is currently being implemented with a focus on increasing efficiency of the financial sector and increasing sustainability in the banking and the financial sector. An important feature of FSMP Phase II is the relaxation of restrictions on foreign banks operating in Thailand.
Since 2010 foreign banks are allowed to open a further two branch offices. So far only HSBC and Citibank have taken advantage of this policy and have both opened a second branch office in 2011.
Additionally, branches of foreign banks will have the option to apply for a foreign subsidiary licence beginning in 2012. Under such a licence foreign banks will be eligible to open up to 20 branch offices in Thailand, subject to the requirement that they have at least THB10 billion of Tier 1 capital.
Thailand's banking sector will go through further changes as it implements it commitments under the Asean Economic Community (AEC) blueprint by 2015. The implementation of the AEC blueprint will place the Thai banking sector under increasing competitive pressures from foreign banks taking advantage of the free flow of goods, services and capital throughout the Asean region.
The finance minister has voiced his support for the liberalisation of the banking sector and wants to give more banking licences to new investors, especially to those from Asean countries, China, Japan and South Korea.
Chantima Limpananda and Stefan Chapman
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