Thailand - Banking and securities

The central bank is the Bank of Thailand, established in 1942. It operates as an independent body under government supervision; its entire capital is owned by the government. The Bank issues notes, a function previously handled by the Ministry of Finance.

The financial sector is broad and diverse. In 2002 there were 33 commercial banks operating the Thailand, 13 domestic and 19 foreign owned. The top three Thai banks are Krung Thai Bank, Bangkok Bank, and Thai Farmers Bank. Many of Thailand's domestic banks are owned by a few wealthy Chinese families. Shareholdings in even the largest banks, led by Bangkok Bank and the Thai Farmers Bank, are structured to insure family control. US banks with full branches in Thailand include Citibank, Chase Manhattan Bank, and Bank of America.

In general, Thai banks have suffered management problems in recent years and are having difficulty in complying with capital-adequacy and other requirements set by the Bank for International Settlements (BIS). The baht currency crisis dealt a severe blow to the banking industry and has prompted a major restructuring of the banking industry. By mid-2000, nonperforming loans accounted for about a third of total lending, down from a peak of almost 48% mid-1999. Thai banks are being forced to accept big write-offs by selling non-performing loans for as little as 30% of the loan's face value.

The Thai domestic banking system has been criticized for failing to mobilize adequate domestic savings and for not offering adequate incentives to savers. The International Monetary Fund reports that in 2001, currency and demand deposits—an aggregate commonly known as M1—were equal to $14.4 billion. In that same year, M2—an aggregate equal to M1 plus savings deposits, small time deposits, and money market mutual funds— was $119.3 billion. The money market rate, the rate at which financial institutions lend to one another in the short term, was 2%. The discount rate, the interest rate at which the central bank lends to financial institutions in the short term, was 3.75%.

Thailand's first public stock exchange was opened in Bangkok on 30 April 1975 (the Securities Exchange of Thailand-SET). All of its 30 members were Thai-owned securities firms. The Ministry of Finance encourages companies to go public by reducing income tax for listed companies and also by according favorable tax treatment of dividends. It was not until the late 1980s that the market was taken seriously by the international and domestic financial communities. Because of the Asian financial crisis, the stock exchange lost its appeal as a source of corporate funds. In 1998, however, a four-year downward trend was reversed on news of a strengthened baht. The rally could not be sustained and by years end the SET index was down 4.5%, a substantial improvement over the 55% decline in 1997. In all, the exchange lists 449 companies with a combined market capitalization of just over $36 billion. The turnover ratio is high at over 109%. The SET index was up 12.9% in 2001, at 303.9.