Thai Bank CEO Sees Competition Spurring Mergers: Southeast Asia

“Thailand has too many banks for the size of the market,” Boontuck, 55, said in a June 22 interview in his office in Bangkok. “The country should probably have five or six strong banks, so I think you will see consolidation over the next five years.” TMB is 26 percent owned by the Ministry of Finance.

“In a lot of markets the regulator is the main obstacle to consolidation, which isn’t the case in Thailand,” said Daniel Fineman, Credit Suisse Group AG’s Thailand research head. “The Bank of Thailand in itsmaster plan said it would like to see fewer banks.”Thailand nationalized more than half of its commercial banks during the 1997 Asian financial crisis, and has since sold controlling stakes in some lenders to help repay the cost of the bailouts. Bangkok-based TMB, the country’s seventh-biggest traded lender by assets, raised $1.1 billion in 2007 by selling shares to investors including UBS AG and ING Groep NV, which owns 30 percent of the bank.

Thailand’s biggest lenders by market value, Siam Commercial Bank Pcl (SCB)Kasikornbank Pcl (KBANK) and Bangkok Bank Pcl (BBL), account for almost 69 percent of the 11-member SET Bank Index, which has climbed 18 percent this year, compared with a 12 percent advance for Thailand’s benchmark SET Index. TMB shares slumped 2 percent to 1.5 baht today, the biggest drop in three weeks.

‘Select Services’

“There is a need for consolidation as the few smaller banks are offering only select services such as vehicle financing and stock brokerage services,” said Vikas Kawatra, head of institutional broking at Maybank Kim Eng Securities (Thailand) Pcl, the country’s biggest brokerage.

The nation’s top five banks, which also include Krungthai Bank Pcl and Bank of Ayudhya Pcl (BAY), had total outstanding loans of 6.37 trillion baht ($201 billion) at the end of March, according to data compiled by Bloomberg. That was 63 percent of the industry’s total outstanding loans of 10.19 trillion baht, according to data from the Bank of Thailand.

Loans by Thai commercial banks grew 14 percent in the first quarter as the nation’s recovery from last year’s flood crisis spurred demand for credit, the central bank said in a report in May.

On a price-to-book basis, TMB shares trade at a 28 percent discount to the SET Bank Index (SETBANK), according to data compiled by Bloomberg. TMB has a market value of $2.1 billion.

Not Imminent

Consolidation in Thailand “will probably happen at some point, but it might not happen anytime soon,” Credit Suisse’s Fineman said. “The bigger banks aren’t eager buyers. There’s also a lot of overlap between the smaller banks.”

Acquisitions by international banks may be more likely than mergers between local lenders, Fineman said.

“For the next two years, I don’t see any non-Asian bank pursuing acquisitions aggressively,” Kim Eng’s Kawatra said.

Thailand has 14 licensed commercial lenders, including local units of Malaysia’s CIMB Group Holdings Bhd., Industrial and Commercial Bank of China Ltd., and Singapore’s United Overseas Bank Ltd., according to the central bank.

Nine international banks have closed their operations in Thailand since 2001, according tocentral bank data.

ABN Amro Group NV pulled out of Thailand in 2004, selling its 81 percent stake in Bank of Asia Pcl to UOB for $533 million after the Thai lender recorded seven straight annual losses. HSBC Holdings Plc in January sold its credit card business in Thailand to Bank of Ayudhya for about $115 million.

ING Stake

Amsterdam-based ING (INGA) is TMB’s biggest shareholder, followed by Thailand’s finance ministry, according to ING and data compiled by Bloomberg. Singapore’s DBS Group Holdings Ltd. owned as much as 16.1 percent of TMB before ING’s purchase in 2007, and now holds 2.9 percent. Frans Middendorff, a spokesman for ING, declined to comment on the stake.

Media reports over the past two years have said ING, ICBC, Korea Development Bank and International Finance Corp., the World Bank’s lending unit, may buy the Thai government’s stake in TMB. Siam Commercial bank on June 19 denied a report in the Thai-language Kao Hoon newspaper that it may buy shares.

Thailand sold stakes in ACL Bank Pcl to ICBC in 2010 and in BankThai Pcl to Malaysia’s CIMB in 2008. Thanachart Bank Pcl, partly owned by Canada’s Bank of Nova Scotia, bought Siam City Bank Pcl from the central bank in 2010.

“Building a large network to offer lending services profitably isn’t viable because of competition” in Thailand, Kim Eng’s Kawatra said, adding that consolidation may not happen within five year because “smaller banks are nurturing optimistic ambitions” and may be reluctant to merge.

Indonesian Deals

International banks may see more scope for acquisitions elsewhere in Southeast Asia, such as in Indonesia, where the central bank oversees 120 foreign and local commercial banks.

On April 2, DBS offered to buy PT Bank Danamon Indonesia (BDMN) for about $7.2 billion, the biggest takeover by a Southeast Asian lender. On June 6, Woori Bank Co. signed an agreement to buy a 33 percent stake in PT Bank Himpunan Saudara, declining to provide details on the value of the deal.

In Malaysia, Hong Leong Bank Bhd. bought EON Capital Bhd. for $1.7 billion last year, while RHB Capital Bhd. agreed to acquire OSK Holdings Bhd.’s investment bank for $620 million in May. Most recently, K&N Kenanga Holdings Bhd., a brokerage backed by Deutsche Bank AG, announced on June 15 that it will buy ECM Libra Financial Group Bhd.’s investment banking unit.

“Foreigners are not interested in small operations,” Kim Eng’s Kawatra said. “TMB is certainly one of the choices.”

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