NBFIs provide financial services that differ from those provided by banks, and create a variety of financial services as well as increase competition between different financial institutions.

As a result, customers and consumers receive more effective services. Generally, non-bank businesses refer to non-deposit taking financial intermediaries.

However, some countries define non-bank businesses as non-deposit taking financial intermediaries only for current accounts; in other countries, non-bank businesses include differing characteristics, including taking deposits but not providing credit services, such as postal saving entities in the US, Japan and Italy.

Thailand has long been a bank-based economy. Most businesses and individuals obtain funds and support from commercial banks. The total overall business value of all financial institutions, calculated from the amount of credit at the end of last year, was Bt7.50 trillion. Of this, banks accounted for Bt6.89 trillion (91.86 per cent), financial companies or securities firms for Bt160 billion (2.16 per cent), life insurance companies for Bt50 billion (0.67 per cent), credit foncier companies for Bt950 million (0.01 per cent), and other general non-bank companies for Bt400 billion (5.29 per cent).

However, when combining traditional non-bank businesses operated by financial companies as well as banks, the total credit of these non-bank businesses was Bt714.19 billion, or 9.5 per cent of the total value of credit in the system. This indicates that non-bank businesses have a rather limited role as a source of funds and a lot of room to grow. They should be given greater support and encouraged to play a bigger role as sources of funds for the economy.

In the last decade, NBFIs have expanded their role as sources of funds for businesses and individuals. At the end of the first quarter, outstanding personal loans serviced by non-banks and banks were Bt130.63 billion, consisting of Bt75.35 billion from non-banks, Bt55.14 billion from banks and Bt140 million from finance firms.

Outstanding credit-card loans serviced by non-banks and banks totalled Bt143.56 billion, consisting of Bt67.05 billion from non-banks, Bt48.56 billion from Thai banks and Bt27.95 billion from foreign banks. Factoring firms, which provide working capital loans, had outstanding loans of Bt80 billion.

Leasing companies had leasing loans of Bt60 billion. Finally, hire-purchase firms had hire-purchase loans of Bt250 billion. Personal-loan, credit-card, and factoring companies are short-term sources of funds; whereas, leasing and hire-purchase companies are medium-term sources (three to five years).

NBFIs still have a small role compared with commercial banks in the financial system. This is partly due to unclear supervision, related laws and the implementation of rules and regulations. The level of regulation varies between different types of enterprise or is sometimes completely lacking. This may also bring unfair advantages or disadvantages to entrepreneurs with the same type of business. Moreover, with no specific laws relating to non-bank businesses, financial institutions must depend on other related laws.

Conflicts within these laws differ from those stated in the Laws of Consumer Protection Board. In Thailand, these problems particularly affect developing non-bank businesses. Moreover, data regarding NBFIs is randomly distributed amongst several bodies. There is no central database. This hampers the public sector when trying to plan suitable and effective developmental and regulatory policies.

This is the first of a three-part series by the Finance Ministry's Dr Chodechai Suwanaporn on non-bank financial business regulation. He can be reached at chodechai@fpo.go.th.

Chodechai Suwanaporn

Special to The Nation