Transcript Thai Economy Pre-crisis and Today

Financial Sector Development
Sustainable Growth, Regional Balance, Social
Development for Poverty Reduction
Bangkok, October 26, 2006
Renuka Vongviriyatham
GE Money Retail Bank
Thai Financial Sector: More Resilient to Shock
Pre-crisis
Financial Sector Breakdown
100 %
80 %
60 %
40 %
20 %
0%
Domestic Private Banks
Domestic Private Banks (with the majority
1 H 2006
2005
2004
2003
2002
1999
1998
1996
foreign ownership and control)
T otal Bond Market
Stock market
Loans from financial inst .
Source: BOT & SEC & WB’s estimate
Financial Strength of
Thai Commercial Banks
% of (risk) assets
12 %
80 %
10 %
T ier 1 (LS)
70 %
8%
60 %
6%
% Reserve to NPLs (LS)
50 %
40 %
4%
2%
30 %
0%
ROA (RS)
-2 %
-4 %
20 %
10 %
-6 %
Source: BOT & WB’s estimate
1 H06
-8 %
2005
2004
2003
2002
2001
1999
1998
2000
% NPLs to Loans (LS)
0%
Foreign (single branch ) Banks
State-owned Banks
Total Commercial Banks
Finance Companies
Credit Foncier Companies
Specialized Financial Institutions
Total Financial Institutions
Stand-alone IBFs of Foreign Banks
Total
Source: BOT & WB’s estimate
Jun-97
14
0
Dec-02 Dec-04 Oct-05 Jan-06
6
[1 ]
4
[2 ]
3
6
8
[6 ]
10
[9 ]
[5 ]
4
[7 ]
4
[10 ]
14
1
28
91
12
7
18
3 [3 ]
31
19
6
9 [4 ]
18
3
30
18
5
8 [5 ]
138
17
155
65
7
72
61
4
65
18
3
33
13
5
10
[8 ]
61
2
63
17
3
9
4
[11 ]
34
[12 ]
[13 ]
10
57
0
57
More balance financial sector
No. of financial institutions supervised by
BOT declined
Financial strength of Thai banks improved
Loan growth in line w/ econ growth
Major Reform Actions
Several Master Plans being implemented
Financial Sector Master Plan (2004-2009); Capital Market Master Plan II (20062010); and Insurance Master Plan (2006)
Master Plan for Grass Root Financial Services (draft)
BOT’s supervisory policies, procedures, practices being strengthened
& more transparent
Some improvement in contract enforcement regime
Formal out-of-court mediation framework established
Special Bankruptcy Court established
Legal execution process streamlined to expedite auctions of foreclosed assets
Credit Bureau in operations and governing law amended
Capital market development
New Public Debt Law enacted (2005);
Bond market information centralized; a central depository agency created
Derivatives Law enacted; TFEX launched its equity future in 2006
Deregulation of consumer finance market
Reform Gaps
Legal reform for contract enforcement and secured transaction
Banking law & Central Bank law
Limited deposit insurance – to enhance market discipline
Amendments to Public Limited Companies law; Securities and
Exchange law; Insurance Industry law
Supervision of financial conglomerate and insurance industry
Policy direction for state-owned financial institutions and its
implementation (incl. risk management & CG & supervision)
Restriction on issuance of gov’t securities
Restriction on utilization of Credit Bureau information
Looking in Detail: Resiliency to Shock not Tested
NPLs and Reserve
June 06
% of Loans
20
18
% of NPLs
NPLs
Reserve coverage
16
14
12
120
25%
100
20%
80
15%
60
Source: FitchRatings; Phatra Securities
Bank K
Bank J
Bank I
Bank H
Bank G
Source: FitchRatings; Phatra Securities
Interest Spread of Thai Commercial Banks
Source: FitchRatings; Phatra Securities
Bank F
0%
Bank E
-
Bank D
Bank K
Bank J
Bank I
Bank H
Bank G
Bank F
Bank E
Bank D
Bank C
Bank B
Bank A
-
5%
Bank C
20
2
10%
Bank B
40
Bank A
10
8
6
4
Capital
June 06
% of Loans
Performance
varied
Large private
banks capable of
weathering
economic shocks
Small players need
to strengthen their
franchises to
compete
Areas for Improvement
Share of Financial Inst's Loans
100 %
80 %
60 %
40 %
20 %
0%
6
5
4
-
2
1
Net Loan Spread
Source: BOT & WB’s estimate
1200
27 %
25 %
17 %
13 %
400
200
0
Transfer to
AM C
Source: BOT & WB’s estimate
Write-off
Others incl.
principle
repay.
Jan-05
Jan-04
Jan-06
Access
to finance
Northeast
3 0 ,0 0 0
Debt rest.
Reclassified
(net of
as PLs
reentry NPLs)
Jan-03
3 5 ,0 0 0
18 %
600
Jan-02
Jan-01
Jan-00
Jan-99
Jan-98
Jan-97
Jan-96
Jan-95
Number of Population per Branch of
Banks and SFIs (BAAC, GSB, and GHB)
Persons per branch
Billion Baht
Asset
quality
Jan-94
Source: BOT & WB’s estimate
Reasons for Reduction in Headline NPLs
1000
Jan-93
Jan-92
-1
Jan-91
1 H 06
2005
2004
2003
2002
1999
1998
finco and credit foncier companies
foreign banks
privat e commercial banks
st at e commercial banks
SFIs
800
Efficiency;
credit risk
MLR - 3 m Deposit Rates
3
1996
Resource
allocation
MLR minus 3m Deposit Rates and Net
Loan Spread of Thai Commercial Banks
Percent
8
7
2 5 ,0 0 0
2 0 ,0 0 0
North
South
1 5 ,0 0 0
Central
1 0 ,0 0 0
Bangkok
5 ,0 0 0
0
Source: BOT & WB’s estimate
East
Thailand's
Average
Looking into the Future
De mographic Tre nd
Saving for retirement & growth
100 %
Are we saving enough?
How to increase return on saving?
Not only boost saving but not waste it
Instruments
80 %
60 +
60 %
30 -39
40 %
More efficient financial intermediaries
0 -19
0%
1996
2005
2010
2015
2020
Domestic Saving to GDP Ratios
40
35
25
20
15
10
5
Gross domestic saving to GDP ratio
Household saving to GDP ratio
Corporate saving to GDP ratio
Source: NI 1980-2001 and NI 2004
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
0
1991
as % of GDP
30
1990
SMEs
Low income HH
2000
Source: NSO & WB’s estimate
Financial service liberalization
Access to finance
20 -29
20 %
Balance bet. efficiency and stability
Infrastructure & legal framework
Market mechanism & supervision
Effective exit mechanism
Unavoidable
When and how?
Prepare for increase in volatility
50 -59
Appendix
WB’s CDP-FC Program
The Country Development Partnership (CDP) is a knowledgebased partnership that provides support in terms of policy
advice, third party technical assistance, and capacity building
in response to the needs of the authorities.
Launched in April 03
Subsequent to crisis responded assistance and CDPC – both
emphasized short-term structural reform to cope with the
impact of the financial crisis
Geared toward medium-term issues of enhancing
competitiveness of the financial and corporate sectors
Concluded in June 06
CDP-FC: CDP Financial and Corporate Sector Competitiveness
CDPC: CDP Competitiveness
CDP-FC’s Six Components
Strengthening financial sector strategy and structure
Enhancing supervision and regulation
Improving the speed and quality of corporate debt restructuring
Enhancing intermediation on a risk-adjusted basis
Improving corporate governance
Developing capital markets
CDP-FC’s End Outcomes
Promote sustainable growth
Decrease vulnerability, frequency, and costs of downturns
Improve resource allocation to most productive uses
Ensure access to assets and income opportunities for all
segments of society
CDP-FC’s Intermediate Outcomes
1. Strengthen the Financial
Sector Strategy and
Structure
2. Enhance Supervision
and Regulation
3. Improve the Speed and
Quality of Corporate Debt
Restructuring
4. Enhance Intermediation
on a Risk Adjusted Basis
5. Enhance Corporate
Governance
6. Develop Capital Markets
Strengthen the financial
sector strategy and structure
Improve the depth and
efficiency of the financial
sector
Enhance market discipline
of deposit taking financial
institutions
Increase access to financial
services to SMEs and lowincome household
Enhance supervision and
capacity of supervisors
for financial institutions
Improve framework to
supervise financial
conglomerate and better
cooperation across regulatory
agencies
Enhance disclosure by
financial institutions
Improve speed and quality
of corporate restructuring via
TAMC
 Improve the legal regime
for credit enforcement
Improve out-of-court debt
restructuring regime
Enhance level playing field
between state and private
financial institutions as well
as between small and large
institutions
Strengthen information
infrastructure
Enhance corporate
governance, disclosure, and
accountability of Thai firms
Improve accounting and
auditing standards and
professionals
Strengthen the oversight and
the accountability of the
board of directors of public
companies
Strengthen shareholders’
right
Enhance the depth and
efficiency of domestic capital
market as alternative source
Improve market liquidity
and transparency
Primary market mechanism
strengthened
The quality of supplies
improved
Efficiency of the trading and
the clearing & settlement
platforms for securities
trading strengthened
Improve risk management
mechanism for market
players