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Published on July 13, 2007

The financial institutions will be involved in sectors such as mortgage insurance, credit derivative trading and credit scoring, said Paiboon Kittisrikangwan, a senior director of the Financial Institutions Policy Group.

The liberalisation is a part of Financial Master Plan Phase II, which is likely to be finalised in the first quarter of next year and implemented between 2009 and 2013. The plan consists of three components: a reduction of the operating costs of financial institutions, an increase in competitive levels and an improvement in financial infrastructure.

Paiboon said the types and numbers of new players would be based on what is lacking in the financial system and how they could add value. Both Thai and foreign players are welcome to participate.

"We must consider what we are short of and whether new players can fill the gaps with new products and new technologies of risk management. By the way, we must liberalise cautiously and on a step-by-step basis with a regard to the readiness of the system," he said.

According to the plan, aside from non-bank companies, commercial banks would consist of different types such as universal banks and niche banks.

Paiboon said the existing banks would be able to do additional securities-related business as obstacles for foreign banks doing such business would be abolished.

"The financial institutions must be enthusiastic to improve their management and operational efficiency as the competition will be stronger," he said.

In addition, the master plan aims to reduce the operational costs of financial institutions incurred by regulations that are harmful to their efficiency.

Paiboon said, for example, that regulations about branch openings or new-product launches would be eased.

The relaxation, however, must not have an adverse impact on the security of each bank and the overall financial system. The point is to strengthen the banks' operations and risk management in order to stabilise the system.

The plan also aims to develop financial infrastructure: laws, database systems, risk-management instruments, human resources and consumer protection.

Sound infrastructure would allow financial institutions to function with lower costs, leading to lower overhead costs for the overall system. This would result in an increase in the competitiveness of financial institutions, said Paiboon.

The plan would also encourage good supervision and pave the way for financial institutions to enter and exit in an orderly fashion.

Paiboon said inefficient players under fierce competition should exit in an orderly manner as the central bank would establish assisting procedures such as the Deposit Insurance Agency.

Liberalisation requires the readiness of the existing financial institutions, thus they should be allowed a certain period to improve themselves.

"We do not want their efficiency to be lower than those of in the neighbourhood, which would lead to more expensive products. We want the entire economy, debtors and depositors, to get the benefit from the master plan," he said.

Anoma Srisukkasem

The Nation