Published on January 18, 2006

Siam Commercial Bank’s chief executive officer yesterday urged banks not to be so afraid of a future Thailand-US free-trade agreement, citing an example from the European Union where the banking sector enjoys full liberalisation but customers still prefer local banks due to their long-standing trust.

SCB president and CEO Khunying Jada Wattanasiritham said at a seminar entitled “European and Asian Economies” that although the European banking sector has already become a common market, people in different countries were still attached to local banks.

EU banks can move freely across borders as part of the EU integration process. For instance, British banks can set up offices in France to compete directly with local banks. French consumers, however, prefer French banks.

Non-national banks in the EU tend to have limited success because they cannot compete with long-established commercial banks, she said.

“What happened in the banking sector is somewhat revealing,” Jada added. “In banking, the establishment of trust is very important for customers when choosing their banks. It’s a good lesson for us not be so afraid to open up the market.”

Last week, Washington and Bangkok failed to strike an agreement on financial-service liberalisation as Thai officials said domestic banking and financial companies were not yet ready to face direct competition. Asked

for her comments on the

proposed FTA with the United States, Jada said: “Whatever will happen, will happen.”

Jada said that the nature of the banking business had changed, especially when it comes to a foreign presence.

She said Thai banks used to open up overseas branches for three reasons. First, to be where there were financial centres. Secondly, to participate in trade and investment where Thai companies have involved themselves. Thirdly, to upgrade the skills and knowledge of the bank’s staff by placing them in an environment where such knowledge is available.

SCB once had branches in big cities such as New York and London. However, SCB closed down these branches after the financial crisis in 1997 for three reasons.

First, financial centres had migrated to Asia. Secondly, the investments of Thai companies in foreign countries were not doing well. Third, sufficient knowledge had become available here and there was no need to go overseas.

On whether Asean countries can copy the European monetary integration model, Jada said that although Asean and the EU are not so different in terms of population and area, Asean is very much different from the EU in terms of divergence among member countries.

She said EU countries were much closer in integration than Asean because of their similarity in income and political systems, compared to Asean countries that still have a huge diversion in political systems and economic development.

Secondly, the EU had become a complete single market before monetary integration, while the Asean has not reached the stage of a single market. The level of intra-Asean trade has not grown to the point achieved in the EU where more than half of EU trade comes from internal commerce.

However, Jada added that the lesson from the European Central Bank (ECB) may serve as a model for the Thai central bank in view of discussions on whether the central bank should continue to oversee monetary policy to guard currency stability and to act as a regulatory body at the same time.

After the inception of the ECB, the national central banks in the EU had to transfer the role of ensuring price stability to the ECB. In Thailand, there are discussions whether the Bank of Thailand should separate its role of supervising financial institutions from its role of guarding monetary policy.

She said that the ECB could, therefore, serve as a model for Thailand to study the model of a central bank.

Jeerawat Na Thalang

The Nation

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