CIMB Thai Bank branching out into Laos
Retail service, cross-border products on offer
CIMB Thai Bank will open its first overseas branch in Vientiane in the third quarter of the year to service trade and other business activities between Thailand and Laos.
The new branch forms part of Malaysia-owned CIMB Group's retail banking initiatives this year, Subhak Siwaraksa, president and chief executive officer of the Thai unit, said yesterday.
After the upgrade of the retail banking platform system last year, CIMB Thai's domestic performance is expected to show significant improvement.
Subhak said CIMB Group wanted to see a rising return on equity from CIMB Thai, the target being a top-3 ranking in the Thai banking industry by 2015 with a return on equity of 16-18 per cent, against 10-13 per cent at present.He added that the ROE target would be challenging as the bank had to use its capital carefully because of Basel III requirements. It will, therefore, emphasise fee-based income from retail banking through to wholesale banking.
Chief financial officer Narongchai Wongthanavimok said the Vientiane branch would have the capability to serve retail clients and offer cross-border products to corporate clients in Thailand and Laos.
CIMB Group acknowledges that the Laos market should fall under CIMB Thai's remit because of the tight relationship between the two countries and expanding bilateral trade value.
According to the Lao PDR Trade Portal, in the first 10 months of last year, the value of bilateral trade was US$4 billion (Bt120 billion), representing a year-on-year rise of more than 30 per cent.
The two governments have jointly set an annual trade target of $5.77 billion by 2015.
Narongchai said that under Laotian law, the registered capital required for a bank branch was $12.5 million.
However, given the unclear legal framework in Laos concerning consumer lending, CIMB Thai's branch will focus on providing financial services to corporate customers and on wealth management, rather than on consumer loans, he said.
The bank will not lend to Lao customers if they have no collateral base in Thailand, he said, adding that this would help reduce the risk from doing banking business in Laos.
The bank will target Thai customers who have activities in Laos, as well as Laotian companies conducting business in Thailand, which are mostly small or medium-sized enterprises.
As well as their domestic operations, many Laotian companies have activities in border provinces in Thailand. As these companies are generally affluent customers, wealth management and deposits will be the priorities for CIMB Thai at the outset of offering financial services in the neighbouring country.
"We can service three currencies for deposits: baht, kip and US dollars. Moreover, the branches in border provinces such as Nong Khai and Udon Thani will help support activities and transactions in Vientiane as well," said the CFO.
The Vientiane branch will have 10 staff, two or three of whom will be Thais, including the manager.
CIMB Thai expects the branch to break even by 2016.
Savannakhet and Pakse are other interesting locations for expanding the Laos network because of the potential opportunities they offer in terms of tourism and trading, Narongchai said.
If the bank were to open more than three branches, the establishment of a local subsidiary would be a feasible option, he said.
The registered capital required for setting up a commercial banking subsidiary in Laos is $30 million.