Small banks that have come into existence over the past year have apparently had limited impact on the more established players.

New lenders seem to have difficulty in operating in the current climate of rising interest rates, said Kasikornbank president Prasarn Trairatvorakul.

He said smaller banks have some disadvantages compared to large-sized banks, particularly in fund costs and service networks.

To expand banking infrastructure, especially information technology development, is expensive. If business volume is not high enough, it is not cost-effective, Prasarn said.

Kasikornbank is the country's fourth largest bank in asset terms.

Last year, the Bank of Thailand approved full-service banking licences to some finance firms that later upgraded to bank status. Two who achieved this were Tisco Bank and Kiatnakin Bank. The central bank also granted retail bank licences to Land and Houses Retail Bank, AIG Bank and GE Money Retail Bank.

Although some of the small players have positioned themselves as niche banks offering specialised services, this has not been reflected in their business performance. A niche bank should be able to demonstrate that it has carved

out a niche market for itself.

"Without tangible performance, the niche bank concept is only imaginary. Therefore, smaller banks are likely to consolidate in the future," Prasarn said.

Interest margins and fee income between large banks and smaller banks are also widely different.

The net interest margin (NIM) of big banks is 4.07 per cent on average, while the NIM at small banks is about 2.3 per cent. Fee income of large banks is at 22 per cent of total revenues on average, and about 5 per cent for small banks.

Also, the price per book value at large banks is around two times, while some small banks have a much lower ratio. This makes it significantly more difficult for smaller banks to survive.

Prasarn said that although some depositors had shifted their money from large-sized banks to smaller banks for higher returns, this had not significantly affected large-sized banks' liquidity.

Bangkok Bank executive chairman Kosit Panpiemras said however that new players entering the banking sector bring about more dynamism into the industry and offer customers more alternatives. Some banks have expertise in niche areas such as Land and Houses Retail Bank, which is expert in providing mortgage solutions.

"The newly upgraded banks have not directly affected Bangkok Bank business wise, but they made the industry more active," Kosit said.

Although there are more players in this business, Bangkok Bank still operates traditional business methods, but at the same time is open to introducing innovative new financial products and services to all customer sectors.

Somruedi Banchongduang

The Nation