Although it will be a good consolidation for the industry, the merger between the two state-owned banks may not bring much benefit to the merged bank, said one banking analyst. He said that instead, it would lead to a larger bank, but size in this case seems to offer little benefit.

"BankThai is a small bank and will not bring much benefit to SCIB. In fact, SCIB might not enjoy this merger," said a local broker's analyst. "But it might be a good consolidation for the authorities, who hold shares in both banks. It will be good for the industry as well as the shareholders."

Whether the merged bank's prospects will be more positive or more negative will depend largely on Chulakorn, who applied for SCIB's top job last Thursday and seems certain to be appointed by the end of next month. The analyst said it would depend on how he implements the bank's policies and how he creates a niche market for SCIB.

A source said Deputy Prime Minister and Finance Minister MR Pridiyathorn Devakula had supported Chulakorn's taking the helm at SCIB and given him a mission of merging SCIB with BankThai.

If he becomes SCIB's next president, Chulakorn will replace Arun Chirachavala, who resigned earlier. He was formerly president of Bank of Asia, which was merged into United Overseas Bank (Thai).

A Kim Eng Securities (Thailand) analyst said the prospective merger was unlikely to bring any benefits in terms of strategy to the consolidated bank. Moreover, it might become a synergy trap, because the two banks had no apparent strength.

The analyst said BankThai had no clear position on whether it will be a retail or a wholesale bank. SCIB has announced that it will be a universal bank, but its fundamental strength does not measure up to the concept, because it has only limited fee-based income.

"SCIB's individual customer base isn't large enough for the universal-banking concept. The bank's IT system isn't ready yet to boost retail loans," he said. "For example, its expansion plan for credit-card loans has ground to a halt while awaiting a technology upgrade."

The loan-to-deposit ratio of the two banks is low, 60 per cent each, compared with the ratio of large banks, which is 78-92 per cent.

The analyst said if the two banks did merge, it would be unlikely to lead to benefits from economies of scale. Within the Thai business culture, staff lay-offs have rarely occurred after similar consolidations, and as a result, the operating costs of the consolidated bank would not be reduced significantly.

An analyst at SCB Securities said that although the merger would expand the business scale of the consolidated bank, other benefits were unclear.

"The two banks have no strong points," said the analyst. "If they merged, the consolidated bank's position would not be clear. What would it be?"

The analysts saw one bright spot. They said Chulakorn would probably improve the bank. He has long experience in the banking industry, including a term as chairman of the Thai Bankers' Association.

Jiwamol Kanoksilp,

Somruedi Banchongduang

The Nation