What have been the main drivers of Bank of Ayudhya’s growth? What are your growth projections for this year?

ARNOLD: We have grown organically and inorganically. We have had five acquisitions in four years. Last year, we grew about 13.5% - 14% across corporate, retail, and Small and Medium Enterprise (SME). This year, through the third quarter, we have grown about 11%, which is stronger than we thought. I think it is a measure of the Thai economy and how it has been rather robust through the recent crisis. I think this year with the fourth quarter being our strongest quarter; we will probably hit about 14% - 15%. It will be a very strong year given the economic backdrop of Europe, and Thailand seems to have come through it very well.

How have you gone about re-branding the bank in recent years?

ARNOLD: I think in regards to re-branding, we've achieved a great deal. We were a successful bank when GE came in as a major shareholder in 2007, and we have grown significantly. We have had five acquisitions in four years and we grew to 33 entities, mostly as a result of the acquisitions. After bringing this group together with 33 different names, we felt the need to have a common brand, and a common identity. The brand we chose was Krungsri. Krungsri is the brand that the bank was formerly known by 68 years ago. The name is known throughout the Thai populace, which is the majority of our customer base. It is something that seems to resonate. Banks in Thailand are always known by their color and we are the yellow bank. We have probably not been as visible as we should have been, and I think bringing in Krungsri and the color yellow, as well as modernizing it with our slogan “Make life simple” has done us well. Our brand recognition has gone up significantly, and the desire to use us has gone up even more so. All of our entities have benefited. Rather than spending one hundred and getting the benefit of fifty, we are spending one hundred and getting the benefit of three hundred now in terms of impact. I think it has also helped internally. All the employees we have hired have become part of the group. They have a common identity and a common banner to follow, which is “Make life simple”. It is more than just putting a brand and a sticker on our building and on our branches. We have started to fundamentally change our process, our people, our incentive programs, and our products to match to our slogan. It is an inside-out, and outside-in re-branding of the bank.

How would you rate the financial sector’s growth in Thailand considering the many issues the country has faced in the past several years?

ARNOLD: We have had many different challenges in the last four or five years, and it always seems to happen in the final quarter of the year. Whether it is red shirts, yellow shirts, or floods, the fourth quarter has always been hampered, and growth has always been pretty suppressed. I think it is a measure of the success of the Thai banking system. Despite all the issues, especially with the flood last year, banks continue to grow. It was a dead fourth quarter last year but it has come back very strongly. It is a measure of the robustness of the regulator, looking at how they measure and regulate the banks. We have a very strong capital base with strong structure and strong processes. Secondly it is a measure of the portfolios the banks have built up. Despite all the things that are thrown at them, the portfolios remain strong. Lastly, what I have noticed in the four years I have been here is the resilience of the Thai people. Whatever may happen, I can tell you that two weeks after it finishes, they are back shopping, they are back in business, and they are back being entrepreneurial. The economy rebounds very strongly and the confidence continues to come back. This year we have had a fairly strong year and hopefully no major events will occur before the end of the year.

Where does Thailand stand from a regulatory perspective in terms of harmonization?

ARNOLD: I think the one thing I will say about the regulator is post the 1997 crisis, they put some very strong controls in place. I think when you look at the banking sector as a whole, and certainly the commercial banks, capital adequacy ratios of 15% - 16% are world class, especially when considering Europe’s situation. Tier one of about 10% - 11% is strong. I think if you look elsewhere in terms of provisioning and reserving for example; for us, our coverage ratio is 141%. The average in this sector is 130%. That is stronger than anywhere else in the world. I think there is a two-tier system. I would not say it is foreign branches or foreign banks. I think it is probably commercial banks or government banks. Government banks are measured by a different standard. They are regulated by the Bank of Thailand, but the regulator has limited influence. Their responsibility lies with the Minister of Finance. The Minister of Finance does not have to follow the guidance of the Bank of Thailand. Their reserves are lower, and they do not pay taxes. They are measured by different standards. So I think there is a two-tier system and I think it is widely known. The government is fully aware of it but I think it will take time to come through. The government owns stakes in probably six or seven banks, either wholly or partially owned. I think it will be a question of time before that comes into one market as a whole. It is a potential risk for the Thailand banking sector.

How has banking regulation changed the competitive landscape in the market?

ARNOLD: Among the commercial foreign banks, there is a very healthy competition out there. I think you will see that the banks now are re-branded  The banks have really gone for a retail strategy and that is getting very competitive, which is good for the customers. It is also good for the banks to keep on changing and evolving. The government bank’s roles are defined by their name, Government Housing Bank and Government Savings Bank for example. That defines the product or sector they operate within. In recent years, their scope has moved beyond their name. Government Housing Bank, which provides mortgages, now provides everything else. I think that is where there is more competition and I do not think the competition is entirely fair, given that we are judged by different standards. Ultimately, it is good for the consumer. We need to make sure the controls are in place for the government banks to ensure there is not any particularly financial impact to the state.

What efforts have been made to expand financial services and bring in more customers?

ARNOLD: Most of the financial service sector is in Bangkok. The majority of the populace is in Bangkok. There is more innovation taking place and people are more accepting of the products that are coming out. Certainly the growth in wealth management has accelerated. Whereas five to ten years ago people used deposits alone, more sophisticated products are now become the norm. Fund based businesses have been growing rapidly, about 30% - 40% a year. I think the regulator and the government are very keen to expand financial services beyond Bangkok into the provinces. Branch growth and ATM growth during the last three to four years has been very significant. A lot of the government banks are growing in agricultural areas or rural areas. I think new technology can help too. One of the things we are doing is rolling out technology for phones and remote access, which allows all customers access to banking products, banking services, giving them the ability to transact remotely. I think when you look at the phone penetration here in Bangkok or rural areas, you will see everybody has a phone, which means everyone has connectivity, and everyone can do banking. I think you will see more mobile banking services from Kungsri, not just for Bangkok, but all around the country.

What are your projections for bond issuance in Thailand? How successful has the government’s Baht bond issuance been this year?

ARNOLD: There is still a huge amount of liquidity in the market place. Four years ago, when I came in, there was a large amount of liquidity and it is still here. I think there are a lot of bonds being issued this year and people are taking advantage of the low rates, trying to lock in capital positions. Also, there is a change in regulation. I think the government’s bond issuance has been perceived as fairly successful but I think there has probably been an overload of issuance in the market, certainly in the third quarter of this year. Every bank and the government have started issuing so I think it is overkill right now. We just issued one that has been very successful, and we are going to use that to support our tier two to allow us to continue our growth of 14% - 15% year after year.

Which lines of business show the best growth potential?

ARNOLD: I think when you look at it, GDP growth will be about 5%. Corporate growth will be in line with GDP at around 5%, and SME will be 2 to 2.5 times GDP. Retail will be 3 times GDP. I think the segments that offer the most growth potential at the moment are retail and SME. The government is clearly stimulating the economy with huge infrastructure projects. They are increasing the minimum wage to stimulate consumerism. Mortgages are up. Car sales are up. Consumer goods sales are up. I think retail and SME are where the growth will be in the next couple years. The government debt as a percentage of GDP being in the region of 42%, gives them a lot of opportunity to continue investment and growth, ensuring the Thai economy comes through the global crisis.

What are your future projections for Thailand’s banking and financial service industries? Which indicators are showing the most positive trends and which remain challenges?

ARNOLD: Consumer confidence is still strong. Debt to GDP is still an opportunity to allow the government to play. Inflation is still relatively low. Unemployment is still very low. Interest rates are still low. Those are all positives. I think exports and tourism are the problem areas. We are coming into peak season for tourism now and that is a big driver of confidence in the market place. Quarter 4 and Quarter 1 during the last two or three years have had issues, whether it was floods, red shirts, or yellow shirts, it has dampened the tourism sector, which is a significant driver of growth and inflow. This year will be a big improvement. Tourism and exports are the two potentially negative factors, but all of the other factors are pretty stable, including interest rates, inflation, confidence, and debt to GDP. A debt to GDP ratio of 40% is very good in comparison to other countries in Europe that have about 80% - 90%. Thailand has plenty of potential to continue to grow and invest.