What new initiatives is TISCO Group currently involved in?

APISAKSIRIKUL: Right now, TISCO is trying to expand itself in the larger market of Thailand. We have new products and we are also opening a lot of branches all over the country. This is because we need to prepare ourselves before the ASEAN Community comes into the picture. Thus, the first thing to do is to strengthen our presence here.

Retail banking in Thailand has historically been primarily focused on Bangkok. How much opportunity is there for retail banking to expand outside of Bangkok?

APISAKSIRIKUL: The population in Bangkok is about ¼ of the entire population of Thailand, so Bangkok certainly represents the biggest market. The majority of the population lives here and works here, so if you want to start a business you have to start with the biggest market first, to ensure that you can grow. Most of the time, you would start with Bangkok first, so that if you can occupy the biggest market, it is then not difficult to move outside. The other reason is that, in the past, outside of Bangkok, there was not a sufficient demand for loans or other banking products. The economy was too small and all factories and companies were based in Bangkok. Outside of Bangkok, you would only see farmhouses where there was no need for financial services. So this is the main reason. Lately, however, the landscape in Thailand has changed. You see a lot of factories moving out of Bangkok, to the north and the south, and so there are people who are moving into these areas. Consumption and people’s necessities are also changing into a more developed society. Thus, the retail banking sector is becoming bigger and bigger. At the same time, we are also seeing that the market in Bangkok is very mature. Therefore, if you want to continue growing, you have to go outside and cover all the other provinces in the territory.

In the long-term, how will the dynamic between local and foreign banks evolve?

APISAKSIRIKUL: When the foreign banks come in, they look for high margin areas first. Right now, you will see that, other than the sophisticated tertiary products, the high margins in Thailand are mostly in retail banking. We see that most of the foreign banks coming into Thailand are mostly involved with the capital market, the tertiary products, and now they are moving into the consumer products. However, these are not all the products that Thailand can offer. With regards to the Thai corporate sector, the majority of the companies still deal with Thai banks, because the margin is quite thin. Thai banks are not as sophisticated as foreign banks, so we do not deal with the tertiary products as much. This is more the market of the foreign banks. We are seeing that in the long term, Thai banks will develop greatly, especially when the regulations will diminish the gap between international and local banks. While foreign banks continue to look for high margin products on the consumer level, local banks still need to develop and understand more about tertiary products, capital products, structural products, and risk management. In essence, we need to protect our market.

How will international banking regulatory reform impact Thailand’s banking sector? Will adherence to Basel III be achieved?

APISAKSIRIKUL: I would say that the regulations have developed more and more to be on the international side. In the past, the financial sector was always protected, because it is important to the safeguard of the country’s economy. The government and the regulator have to be very careful and ensure that Thai banks survive and, at the same time, are able to compete in the market among foreign banks. No matter what happens, we are still here and we have to take care of the local market. It is quite different for foreign banks because when they come in, they just think about the profit. But in the meantime, they are providing all kind of services. The regulation at the early stage differentiated the local from the foreign bank. However, after all the financial crises we have witnessed, the gap between local and foreign banks has diminished due to the application of the regulations, which are applicable to all banks internationally. TISCO is now moving into Basel II, where the foreign banks already are, as well as moving into free trade. But at the end of the day the equity treatment is the same for all banks, because the regulations apply to everybody. You will see, nowadays, that foreign banks have been allowed to open new branches to be able to compete with the local banks. This means that we have to be very careful. I would say that, maybe in the next 5 to 10 years the regulations will not be any different and we will all move into Basel III. Certainly, all Thai banks will move into Basel III and I actually think that all of Asia will move into Basel III faster than the western banks as they are still trying to recover from the debt crises.

In what ways does the regulation of state-owned banks differ to the regulation of private banks?

APISAKSIRIKUL: State banks have many types of divisions. For example, the commercial state-owned banks are very similar to the standard commercial banks and they are pretty much the same. But housing or agricultural state-owned banks do not have to comply with any kind of regulation. They are under the supervision of the government and that is it. This represents a huge gap between state-owned banks and private banks. All commercial private banks are trying very hard to adjust this field to have an equal footing. The government agreed to the proposed changes, but has yet to implement these. In fact, we still have to pay 47 basis points for the money that we borrow or we take. Whereas the state-owned banks do not have to, meaning that they can mark up with the client. Also, they are still not under the regulations of Basel III and, thanks to this, they are getting bigger and bigger and making competition uneven.

With only about 25% of the accounts at the Stock Exchange of Thailand (SET) active, what needs to be done to increase volume and liquidity?

APISAKSIRIKUL: Actually, in Thailand we may still have to limit the institutional money from trading in the Thai market, because the Thai market itself is small in comparison to the other countries. Therefore, we need to be careful. We have started this asset management company 25 years ago, but its development is slow because people still do not invest in the stock market. If you look at Thailand, you will see that the income distribution is still quite poor, we are still in the middle class trap and cannot get out of that. If we look back 20-30 years, the proportion between rich and poor people is still the same, meaning that poor people do not have enough money to invest in the stock market. The number of people that actually have the capability of going into the stock market is very limited. We are talking about a half a million people. These are the people who are rich enough to take the risk and invest. Therefore, the only thing that we can do it is to encourage people to save money, in this way we may increase the volume. However, income distribution must improve, so that a larger portion of the population can go into the stock market.

Do you think that increased cooperation and integration with other Asian markets will help augment the volume on the SET?

APISAKSIRIKUL: Hopefully, it should be possible for us to bring some money from other countries in the AEC (ASEAN Economic Community) into our stock market and, on the other hand, encourage our investors to invest outside of Thailand. The size of their portfolio is very large, but they do not want to put everything in one single market. So when the opportunity is open, certainly they will invest more. At the same time, people outside of Thailand will invest in our market. Thus, I believe that the AEC will certainly help to increase the volume on the Stock Exchange of Thailand.

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

APISAKSIRIKUL: I would say that Thailand is still a developing country and its economy is still growing. Our role and function is to serve the economy, so if the economy is still on the state of growth, certainly it offers a lot of potential and opportunities for the banking sector to develop and grow more. I would say that the Thai banking sector in the last years has developed a lot, but it is still far from the most sophisticated markets, as we do not have tertiary products or structured products. The outlook for Thai banks is to continue growing alongside with the economy. More specifically, Japan has recently decided to move its production base to Thailand and that is a good indicator. We see a lot of investment coming in from Japan and we believe that this momentum can continue. Besides that, Myanmar, Laos, Cambodia, and Vietnam are the new emerging countries and, from a geographical point of view, Thailand is strategically located as it is in the centre of Indochina. Under this profile, I think that Thailand should improve its logistics and infrastructure to connect the east to the west and the north to the south. This would put Thailand at the centre of trade and commerce in the region. This will be both the big challenge for Thailand as well as the biggest opportunity to become a strategic trading hub in the region. This would provide a great opportunity for the banking sector. This is also the reason why banks from Singapore, Malaysia, and Indonesia are trying to move into Thailand right now, to be centrally located in view of the AEC.