Thailand is currently in bilateral negotiations with Malaysia, Indonesia and Myanmar under the ASEAN Banking Integration Framework (ABIF), which would lower cross-border licensing restrictions - creating expansion opportunities for the strongest banks. The ABIF envisions the qualified ASEAN banks being eventually allowed to operate more freely in the region, even if progress is likely to be slow, and being dependent on the political climate.
Thailand's largest banks have stronger customer franchises, more diversified business streams, and better through-the-cycle earnings potential than the medium- and small-sized domestic banks, which is reflected in their ratings. However, they are considerably smaller than Singapore's three banks and the two biggest Malaysian banking groups, and comparable with Indonesia's main players (see chart). Opportunities for organic growth have been limited by a downbeat operating environment, with credit growth just 2.4% in 2016 and 4.6% in 2017, albeit there have been signs of improvement in 2018.
https://infogram.com/asean-banks-1h706eo7pqw525y
Thailand's government has explicitly acknowledged that the new incentives are targeted at boosting the size of the largest local banks, so that they become more competitive regionally. In that respect, we view the policy as a nationalistic move, which marks a shift in policy direction after years of allowing foreign banks to take control of local players - most recently with the acquisition of Bank of Ayudhya, the fifth-largest local bank, by Bank of Tokyo-Mitsubishi UFJ.
Larger banks would benefit from stronger economies of scale and would have a greater ability to service large conglomerates - owing to increased large exposure limits. Bigger local banks might also pose larger risks to financial stability in the event of their failure. The Bank of Thailand announced a stronger supervisory framework and higher capital requirements for domestic systemically important banks (D-SIBs) in September 2017, as a step towards full implementation of Basel III international regulations. The five largest banks have all been named D-SIBs, and all have capital ratios well above the new minimum requirements that will be phased in by 2020. That said, the extra D-SIB requirements are lower than in other south-east Asian jurisdictions that are implementing the framework.
The incentives to merge include waivers of corporate income tax, value-added-tax, asset transference tax, revenue stamp, capital gains tax for shareholders, and special business tax. Merger-related expenses would also be available for tax deductions at a rate depending on banks' assets post-merger - ranging from 1.25x expenses for assets of THB1-2 trillion (USD32 billion -64 billion) up to 2x expenses for assets of more than THB4 trillion (USD128 billion).