BOT chief calls for proactive strategy by financial firms

The governor of the Bank of Thailand has urged financial institutions to adopt a proactive business strategy while the government plays a role in drawing the financial landscape for more international competitiveness amid Thailand's real economic structural adjustments and rising competition in the financial institution system.

Speaking at Banker to Broker 2013 on "Roles of Financial Institutions and Thailand's Future" on Thursday, BOT chief Prasarn Trairatvorakul said the proactive strategy had become the core for Thai financial institutions to adjust to the future environment and higher competitiveness, compared with overseas financial institutions.

Under the Financial Sector Master Plan II, more competition will come from overseas in both new licences and negotiations for licensing under the Qualified Asean Bank framework.

"We may agree on the significance of challenges. There is urgency for adjustments with a clear strategy and plan in a prudent and systematic way. All parties, in both the public and private sectors, have to join forces to develop the Thai financial system," Prasarn said.

He urged the public sector to build up a supportive regulatory environment for financial institutions' efficient operations through reduction of unnecessary regulations, while supervising organisations were required to pay special attention to the system for monitoring and supervising new risks that could come together with the financial system's development.

"In the past, Thailand's economic system depended mainly on commercial banks. However, currently the level of dependency on commercial banks is lower, proving the increasing role of capital markets for funding sources and investment channels," Prasarn said.

Thailand is amid economic structural adjustments, driven by both the public and private sectors to upgrade the country's competitiveness, said Prasarn, adding that this could lead to three challenges to the financial system.

One challenge is that the new investment cycle would see large projects, and that obliged commercial banks to ensure sufficient liquidity and capital for risks, he said. Maturity mismatch could be lessened through the capital markets.

Another challenge could come from funding risks for overseas investment and low-liquidity and complex large projects like those for infrastructure.

Prasarn suggested that commercial banks adopt foreign-exchange risk management with monitoring and managing foreign traders' risks and for overseas investment, while having monitoring and risk management systems ready for infrastructure projects.

The last challenge is the necessity to change domestic savings patterns.

At present, Thais save their money in the form of deposits or short-term funds, which do not match longer-term future investment and needs of an ageing society.

Commercial banks may promote longer-term savings through longer-term debt instruments, said Prasarn, adding that the major role for promotion of longer-term savings must be taken by the capital markets, where a greater variety of products exists and the customer base is expanded for more liquidity.