Digital-banking at core of new infrastructure amid changes in consumption patterns
The Thai Bankers’ Association is drawing up a five-year framework (2014-2018) to help lay out the infrastructure for banks in dealing with the changing behaviour of consumers and external factors.
Under the framework, the TBA is focusing on digital banking because technology developments and flows have influenced consumption patterns, including bank transactions, said Boontuck Wungcharoen, chairman of the association.
With about 70 per cent of financial transactions now undertaken on mobile banking instead of through traditional bank branches, the TBA forecasts that digital documents will continue to replace physical documents and all Thai payment transactions will be made via the mobile medium in the next few years, he said.
“This will be the first framework created by the association, as the banking sector is a crucial tool in driving the Thai economy. Therefore, we have to have a firm payments system in place in order to catch up with the new technologies and deal with capital liberalisation under the Asean Economic Community,” he explained.
When the payments system changes, physical branches will be transformed into playing the role of advice channels for investment and banking products instead, Boontuck said, acknowledging that this would be another challenge for banks in terms of relocating human resources from front counters to become financial advisers.
The TBA chief said the country’s banks also had to prepare themselves to tackle external factors, including unexpected risk in the future, even though their capital situation was strong.
A firm infrastructure could help reduce costs and improve management efficiency in the long run, he added.
One key external factor is Basel III, under which banks have to retain sufficient capital to comply with the Bank for International Settlements’ capital-adequacy requirements, as well as Tier 2 sub-debt issuance requirements, which result in higher funding costs for banks.
Another external factor that increases banks’ costs is the Foreign Account Tax Compliance Act, under which Washington requires non-US banks to report the financial accounts of Americans who live outside the United States.
If the European Union were to introduce similar requirements to those of the US, Thai banks would face yet higher costs, he warned.
On the domestic front, apart from the payments system, the association is pushing for an increase in the guarantee limit of the Thai Credit Guarantee Corp on loans to small and medium-sized enterprises from the current 18 per cent to 50 per cent, he said. As the Thai economy is set to get fully back on track next year, SMEs should be supported to help them grow in line with economic expansion, Boontuck said.
Draft secured-transactions legislation is one area of the five-year plan on which the TBA is focusing in terms of enhancing banking infrastructure. If the draft became law, companies would have more flexibility in doing business, he said.
Boontuck said a major challenge for Thai banks next year would be tighter liquidity resulting from the pick-up in the economy and huge investment, driven by the public sector.
The upcoming end of quantitative easing in the US will also tighten liquidity. Banks therefore have to manage their funding costs because another result of QE tapering is the upward trend of interest rates.
Meanwhile, competition in the deposit market is expected to be seen over the remainder of this year, ahead of a further hike in interest rates next year. All banks therefore need to prepare their liquidity in order to meet lending demand in 2015, he said.