Thailand's financial master plan focuses on liberalization
By Jon Fernquest
The Bank of Thailand's financial master plan
for Thailand's financial
sector was the focus of a special article in the Bangkok
Post last week which we look at today. Before the recent global economic crisis, a gradual reduction of deposit insurance in Thailand was predicted to lead to investor funds moving out of bank accounts and into higher yield investments such as mutual funds and the stock market (Read 2008 article).
It is worth noting that some economists find that deposit insurance can actually increase risk in a country's financial system and contribute to a financial crisis (Listen to Charles Calomiris of Columbia Business School on Econtalk).
Today's article is rich in vocabulary describing Thailand's financial sector.
Also read recent BOT speech on the BOT plan.
Article begins after vocabulary:
Bank of Thailand (BoT)
- Thailand's central bank (See website)
central bank - a government monetary authority in charge of monetary policy, issues currency, regulates supply of loans and credit, holds the reserves of other banks and foreign currencies (See Wikipedia)
liberalisation - reducing regulations
sector - a part of the economy (public sector = government, private sector = all businesses, household sector = families and consumers, banking sector,...) (See Wikipedia)
liberalise the sector - reducing regulations in a sector of the economy
master plan - a overall plan (to help succeed in a difficult task)
financial master plan - the master plan for the whole financial sector of an economy
deposit insurance - insurance to protect bank deposits from loss in a financial crisis (See Wikipedia)
higher yield investments - investments that earn more money each year
central bank - a government monetary authority in charge of monetary policy, issues currency, regulates supply of loans and credit, holds the reserves of other banks and foreign currencies (See Wikipedia)
liberalisation - reducing regulations
sector - a part of the economy (public sector = government, private sector = all businesses, household sector = families and consumers, banking sector,...) (See Wikipedia)
liberalise the sector - reducing regulations in a sector of the economy
master plan - a overall plan (to help succeed in a difficult task)
financial master plan - the master plan for the whole financial sector of an economy
deposit insurance - insurance to protect bank deposits from loss in a financial crisis (See Wikipedia)
higher yield investments - investments that earn more money each year
Economics
BANKING
BoT pushes liberalisation under new plan
5/11/2009Wichit Chantanusornsiri
Thailand's new financial master plan will offer greater opportunities for foreign banks, says Bank of Thailand governor Tarisa Watanagase.
New specialised financial institution categories will be set up and commercial banks will be given more flexibility in their business operations, she added.
The central bank's second financial-sector master plan would gradually liberalise the sector from 2010-14.
The first master plan, from 2004-08, aimed to improve the efficiency of, and public access to, financial services. The second will focus on reducing funding costs to support growth while increasing flexibility to cope with market volatility.
financial institution - a
bankor other company that offers financial services (deposits, loans,
investing)
efficiency - putting resources to best use without wasting them, making best use of resources
public access - the public can use a service: 1. reasonable cost, 2. has necessary skills
volatility - moving up and down suddenly and unexpectedly
cope with - deal with a very difficult problem
flexibility to cope with market volatility - have to be able to change approach and try out different solutions in order to solve the problem of volatile market prices
efficiency - putting resources to best use without wasting them, making best use of resources
public access - the public can use a service: 1. reasonable cost, 2. has necessary skills
volatility - moving up and down suddenly and unexpectedly
cope with - deal with a very difficult problem
flexibility to cope with market volatility - have to be able to change approach and try out different solutions in order to solve the problem of volatile market prices
Liberalisation will be split into three stages. Phase one, from 2010-11, will focus on increasing the competitiveness of Thai commercial banks. Local banks will be encouraged to merge, while bank regulations will be revised to allow for an orderly exit in case of crisis.
Banks will also have free rein to open branches, providing they comply with ratings criteria and demonstrate risk management and internal controls.
Commercial banks will also have flexibility to expand to other financial services, such as asset management.
merge - when two
companies join together to become one company (See Wikipedia
on mergers and acquisitions)
revised - changed, rewritten
orderly exit in case of crisis - recover successfully from a crisis (without causing another crisis)
have free rein to - have freedom of action to
comply with - follow a rule
ratings - numbers that compare how good a company's stock, bonds, or other securities are as an investment
criteria - standards, the key points of comparison that you use to make a decision
comply with ratings criteria - have high enough, good enough rating and standards
demonstrate - show how something works
risk management - management policies, procedures and practices for identifying, analysing, evaluating, treating and monitoring risk (See Wikipedia)
internal audit - a company's own examination of business practices inside the company to see if its own systems and controls are working properly (See Wikipedia)
internal controls, internal auditing controls - rules used within a company to restrict, limit, or manage activities and use of resources (See Wikipedia)
commercial banks - a bank or a division of a bank primarily dealing with deposits and loans from corporations or large businesses (See Wikipedia)
asset management, investment management - the management of the financial assets of a company in order to maximize return (See Wikipedia)
revised - changed, rewritten
orderly exit in case of crisis - recover successfully from a crisis (without causing another crisis)
have free rein to - have freedom of action to
comply with - follow a rule
ratings - numbers that compare how good a company's stock, bonds, or other securities are as an investment
criteria - standards, the key points of comparison that you use to make a decision
comply with ratings criteria - have high enough, good enough rating and standards
demonstrate - show how something works
risk management - management policies, procedures and practices for identifying, analysing, evaluating, treating and monitoring risk (See Wikipedia)
internal audit - a company's own examination of business practices inside the company to see if its own systems and controls are working properly (See Wikipedia)
internal controls, internal auditing controls - rules used within a company to restrict, limit, or manage activities and use of resources (See Wikipedia)
commercial banks - a bank or a division of a bank primarily dealing with deposits and loans from corporations or large businesses (See Wikipedia)
asset management, investment management - the management of the financial assets of a company in order to maximize return (See Wikipedia)
From 2012-13, the central bank will allow greater competition within the sector, starting by allowing foreign banks to open up to two branches in addition to their head offices.
Retail commercial banks - a category that covers institutions such as Land and Houses Retail Bank - will be allowed to upgrade to full bank licences if their tier-one capital exceeds 10 billion baht.
The second phase will bring licences for services such as microfinance, trusts, Islamic finance and investment banking.
Foreign banks operating in Thailand may also apply to change their legal status to bank subsidiaries with the capacity to open up to 20 branches and 20 ATMs. Foreign bank subsidiaries must maintain minimum tier-one capital of 10 billion baht and pass criteria on ratings and risk-management practices.
retail banks
- banks that
provide directly to small walkin customers
Land and Houses Retail Bank - name of a bank in Thailand (See descriptions #1)
upgrade - improve
tier-one capital - bank reserves kept by banks to back loans, the most important measure of a "bank's financial strength from a regulator's point of view" includes common stock and disclosed reserves (retained earnings) plus some other things, part of the Basel I and Basel II systems of bank risk management (See Wikipedia)
tier-two capital - a measure of a bank's financial strength with regard to the second most reliable form of financial capital, from a regulator's point of view: undisclosed reserves, revaluation reserves, general provisions, hybrid instruments and subordinated term debt (See Wikipedia)
microfinance - a system of borrowing to support poorer people living in a rural agricultural economy (See Wikipedia)
trusts, trust companies - a company that manages money and assets for other people (See Wikipedia)
Islamic finance - banking that follows the rules of the Islamic religion (See Wikipedia)
investment banking - banks that help companies sell stock shares (IPO) and also help them buy other companies (acquisitions) and join with other companies (mergers) (See Wikipedia)
legal status - how a person or business is called (classified, categorized) according to law
capacity to - ability to, permission to
bank branches - individual bank buildings where customers can go to receive face-to-face retail banking services (See Wikipedia)
pass criteria on ratings - high enough ratings
Land and Houses Retail Bank - name of a bank in Thailand (See descriptions #1)
upgrade - improve
tier-one capital - bank reserves kept by banks to back loans, the most important measure of a "bank's financial strength from a regulator's point of view" includes common stock and disclosed reserves (retained earnings) plus some other things, part of the Basel I and Basel II systems of bank risk management (See Wikipedia)
tier-two capital - a measure of a bank's financial strength with regard to the second most reliable form of financial capital, from a regulator's point of view: undisclosed reserves, revaluation reserves, general provisions, hybrid instruments and subordinated term debt (See Wikipedia)
microfinance - a system of borrowing to support poorer people living in a rural agricultural economy (See Wikipedia)
trusts, trust companies - a company that manages money and assets for other people (See Wikipedia)
Islamic finance - banking that follows the rules of the Islamic religion (See Wikipedia)
investment banking - banks that help companies sell stock shares (IPO) and also help them buy other companies (acquisitions) and join with other companies (mergers) (See Wikipedia)
legal status - how a person or business is called (classified, categorized) according to law
capacity to - ability to, permission to
bank branches - individual bank buildings where customers can go to receive face-to-face retail banking services (See Wikipedia)
pass criteria on ratings - high enough ratings
In the third phase from 2014, regulators plan to focus on Thailand's regional presence and Asean economic integration.
The central bank has no plans to offer new universal banking licences, seeing the current 15 banks as enough for the country's needs.
integration -
joining together into one unified whole
economic integration - joining the economies of different countries into one unified whole
regional presence and Asean economic integration
universal bank - a bank that offers many different kinds of services (loans, deposits, investment management), could be both a commercial bank and an investment bank at the same time
universal banking licences - official government permission for a bank to operate as a universal bank
economic integration - joining the economies of different countries into one unified whole
regional presence and Asean economic integration
universal bank - a bank that offers many different kinds of services (loans, deposits, investment management), could be both a commercial bank and an investment bank at the same time
universal banking licences - official government permission for a bank to operate as a universal bank
Regulators said the new plan maintained broader goals of improving small business and public access to financial services and expanding asset types permitted for use as collateral. About 10% of the population is estimated to lack access to mainstream financial services.
Finance Minister Korn Chatikavanij said interest margins would be one measure the public could use to judge the plan's success. Bangkok Bank, the country's largest bank, currently offers savings deposit rates of just 0.5% against prime lending rates of 5.875%.
Despite flat loan growth in the first half of the year, Thai banks generally continued to post strong profits in terms of both interest and fee-based income.
Mr Korn said the capital market would also be liberalised, with new securities licences offered to increase competition.
Regulators hope the eight-step development plan for the capital market will help expand its size to 130% of GDP by 2013 from 86% in 2008, while increasing the investor base and facilitating the use of equities and bond markets as funding sources for local companies.
Currently, just 2.4% of the population invests in mutual funds. This is projected to double to 5% by 2014 under the plan.
broader goals -
higher level goals, not specific and probably long-term (for example:
solve poverty)
access to financial services - able to save money at bank and get loans from bank
collateral - property or assets that a borrower promised to give lender if they cannot pay a loan back
mainstream - the usual or normal way of doing something or thinking about something
a margin - a difference
interest margins - a difference between two interest rates (here: interest rate paid by bank to depositors and received for loans)
savings deposit, savings account - a bank account meant for saving money with higher interest paid, money kept for longer (See Wikipedia)
flat loan growth - loans not increasing or decreasing, staying at same level
fee-based income - money that customers have to pay for bank services (example: 150 baht for ATM withdrawal from foreign bank)
securities licences - permission from the government to help people buy and sell stocks and bonds (broker)
increasing the investor base - increase the percentage of people in the economy who are investing in companies (put their savings in stocks or mutual funds)
facilitating the use of equities and bond markets as funding sources for local companies
mutual funds - collects small amounts from many investors and invests it in stocks, bonds and other investments (See Wikipedia)
access to financial services - able to save money at bank and get loans from bank
collateral - property or assets that a borrower promised to give lender if they cannot pay a loan back
mainstream - the usual or normal way of doing something or thinking about something
a margin - a difference
interest margins - a difference between two interest rates (here: interest rate paid by bank to depositors and received for loans)
savings deposit, savings account - a bank account meant for saving money with higher interest paid, money kept for longer (See Wikipedia)
flat loan growth - loans not increasing or decreasing, staying at same level
fee-based income - money that customers have to pay for bank services (example: 150 baht for ATM withdrawal from foreign bank)
securities licences - permission from the government to help people buy and sell stocks and bonds (broker)
increasing the investor base - increase the percentage of people in the economy who are investing in companies (put their savings in stocks or mutual funds)
facilitating the use of equities and bond markets as funding sources for local companies
mutual funds - collects small amounts from many investors and invests it in stocks, bonds and other investments (See Wikipedia)
(Source: BoT pushes liberalisation under new plan, 5/11/2009, Wichit Chantanusornsiri, link)
