Banking System of Thailand

The banking and financial sector of Thailand consists primarily of domestic and foreign commercial banks. Foreign banks are allowed to operate only within limited scopes, which restricts their ability to compete with Thai banks. Following the 1997 financial crisis, several foreign banks acquired stakes in Thai commercial banks that have branch networks across the country. Thailand also has a number of state-owned financial institutions whose primary role is to provide financial services to specific sectors of the economy.

In addition to commercial and state banks, financial institutions in Thailand include finance companies, credit institutions, and insurance companies.

Bank of Thailand

The Bank of Thailand is responsible for all key banking operations. As the Central Bank, its functions include:

Formulating monetary policy to maintain exchange rate stability;
Supervising financial institutions;
Advising the government on economic policy;
Managing the country’s foreign exchange reserves, as well as issuing banknotes.

In accordance with the Financial Sector Master Plan developed by the Central Bank and the Ministry of Finance, a new Financial Institutions Act has been drafted.

The draft law is currently under review by the House of Representatives and the Senate Committee. It is based on international standards of banking supervision and will replace existing legislation governing the banking and financial sectors. The new law will grant the Bank of Thailand broader authority to oversee financial institutions.

The Central Bank will provide guidance on:

Sound corporate governance;
Timely corrective actions to address deficiencies;
Consumer protection;
Risk-based supervision;
Consolidated supervision of financial groups.

In addition to regulatory reform, the Bank of Thailand has been working on improving disclosure requirements and accounting standards for financial institutions, as well as establishing a credit bureau.

Outlook

Under the Master Plan, Thailand will have only two types of financial institutions authorized to conduct banking activities:

Full-Service Banks

These banks provide a full range of financial services to all types of clients, except for insurance underwriting, brokerage activities, trading, and underwriting of securities.

Retail Banks

These banks focus on small and medium-sized enterprises (SMEs) and low-income clients, with lending limits per customer. In practice, retail banks may offer nearly the same services as full-service banks, except they are not permitted to engage in foreign exchange operations or derivatives trading.

Foreign Financial Institutions

There will be two types of foreign financial institutions:

Full Branch Presence

These institutions may provide services similar to full-service banks. However, they are not allowed to open more than one branch or operate in Thailand in any form other than their existing structure.

Subsidiaries

These entities may offer the same services as full-service banks and are allowed to open 3 to 5 branches. Specific criteria for establishing subsidiaries are to be introduced at a later stage.

Further implementation stages will primarily focus on restructuring foreign financial institutions operating in Thailand.