The Role of Foreign Banks in the Thai Banking Sector


Foreign banks in Thailand have continued to intensify their operations since they were established. International trade between Thailand and other countries has increased strategically which has made the country rank higher in terms of development and growth. Although there have been some negative consequences of the inception of these banks on Thailand’s social values, the positive developments are commendable (De Brouwer, 1999). They have brought change to Thailand which would have not been possible had these banks not been allowed.

The role of foreign banks in the thai banking sector

The influx of foreign banks into Thailand started in may 1990 when Thailand accepted the international monetary fund article VIII. This article lifted all the controls that were placed on the current account transactions and brought a lot of change in Thailand’s financial market. Before the inception of these banks, Thailand’s’ rate of production was slightly lower. It was difficult especially after the financial crisis for the nation to maintain its growth without assistance from foreign policies. It was after this period that Thailand deregulated the local financial markets. This was done with the aim of ensuring an effective supply of money through banks, enhance payments and transfers and to observe and ensure good relationship among different banks. The bank of Thailand then decided to open up to foreign trade through pegging regime (Drysdale, 2000). This consequently requires them to adhere to the reserve levels of foreign exchange with the main currencies of the world which will enable it to monitor its economic cycles. Many international banks have since then opened their branches in Thailand.

Foreign branches in Thailand

  • American Express Bank (representative office)
  • Australia & New Zealand Banking Group (representative office)
  • Bank of Baroda (representative office)
  • Bank of New York (representative office) Cathay United Bank (representative office)
  • China Trust Commercial Bank Ltd (representative office)
  • Commerzbank Aktiengesellschaft (representative office)
  • Credit Industriel et Commerciel (CIC) (representative office)
  • Credit Suisse (representative office)
  • DEG-Deutsche Investitions-und Entwicklungsgesellschaft mbH (DEG) (representative office) EFG International (representative office)
  • First Commercial Bank (representative office)
  • Hachijuni Bank Ltd
  • ICICI Bank Ltd (representative office)
  • ING Bank NV (representative office)
  • INTESA SanPaolo S.P.A. (representative office)
  • Japan Bank for International Cooperation (JBIC) (representative office)
  • Merrill Lynch International Bank Ltd (representative office)
  • Natixis (representative office)
  • Resona Bank Ltd (representative office)
  • The Sumitomo Trust & Banking Company Ltd (representative office)
  • UBS AG (representative office)
  • Wachovia Bank NA (representative office)
  • The World Bank Thailand

During this liberalization movement, commercial banks were allowed to venture into new business activities such as; selling debt instruments to the public sector, management of mutual funds, custodians and security registrars, foreign exchange and dept underwriting. In 1996 china faced some serious economic issues that weakened its position in the world market. Foreign investors started withdrawing from Thailand as they had lost their confidence in its economy. This economic crisis that Thailand faced was attributed to the following errors in their policies: financial institutions were liberalized prematurely, foreign capital flows were liberalized yet there was rigidity in the exchange rate system and lack of prudence in the supervision of the financial institutions. During this crisis, foreign banks had no popularity with the local customers and they hence concentrated their operations on wholesale customers (Clark, 1990). In 2001 foreign banks started their operations with the retail customers which made them gain ground in Thailand’s banking sector. With the presence of foreign banks in Thailand, there was disappearance of connected lending and family banking in the country. The technology that is being used in foreign banks found access to the domestic banks.

Positive impacts of foreign banks

Even though there is always fear of competition with the immergence of international banks, their presence in Thailand has given it some international status which has led to positive impact not only in the financial market but also to the general economy. Foreign banks strengthen the economy by giving it an international standard which makes it resistant to the financial crisis. Foreign banks operate in higher standards and employ sophisticated methods in its operation, this may be a threat to the local banks which will in turn make them to strive towards this standards. During this process, there will be introduction of international management skills in the local banks, thus improving their operations. The lending capacity of foreign banks is much higher than that of domestic banks; this has had an impact on economic stability and gradual growth. Foreign banks have introduced the use modern banking facilities like credit cards, debit cards and ATM machines which has enhanced business transaction (David, 2000). When it comes to being secure with the money, this technology has really been of great help. People don’t need to carry and use money to make there business transactions, they can instead use this tools that are acceptable in the international business world. Lending that was done by this banks to the country gave rise to the development in various sectors like establishment of private hospitals, the petroleum and steel industry investments in real estates.

Negative impact of foreign banks

Foreign banks have continued to gain popularity in the local market due to the modernized technology they employ in their operations. This trend has continued to sack a country of its resources as the profits accrued from these operations are invested in other countries rather than their own. They set very high standards for domestic banks which may be hard for them to maintain. This has frustrated the growth of the local banking sector making many of them to loose their market share. Foreign banks entry has made the local bankers to loose confidence in their own banks and this has made them to desire an international image which is a threat to the cultural heritage (Cook, 2008). As much as these banks give consumer loans to the residents, they major in giving short term loans and limit the long-term loans; this has been of little benefit to the people of Thailand. The workers employed in these banks are generally the citizens of the country and they usually have to face merciless retrenchments when there is a decline in the economic trend. There has been a strain on Thailand’s’ resources due to the high demand of these foreign institutions. Thailand has had to invest more on projects to generate more electricity to supplement on the high demands.

Impact on the Market share

Foreign banks that have been invested in Thailand have recorded a large market share in Thailand’s economy. There has been an increase in the total assets owned by these banks with the percentages increasing as the years go by, pre-tax turn over which has also increased averagely by 45% and a 30% increase in their outstanding loan (Peter, 1996). They have also recorded a reduced rate in overhead expenses and less loss in the loans provision. In the recent past, foreign banks have been buying joint stock commercial banks shares. It has been predicted that this share is going to increase with the intentions of this banks to open more branches and diversify their operations in Thailand. Foreign banks have also invested in other development projects rather than the banking sectors. This has enabled them to increase there share potion in the market.

Impact on economic growth

The economic growth of Thailand has experienced an upward surge since the entry of foreign banks. In southern Asia, it is ranked as second to Indonesia in the economic growth. In relation to wealth capacity spread in south East Asia, it is ranked forth according to the gross domestic product (GDP) per capita. Thailand has made several investments in the different regions of south East Asia (Paul, 2000). Foreign transactions have been made easy and convenient with the availability of foreign banks. This has led to an increase in growth of the tourism sector which has become one of the major sources of foreign revenue to the country.

Foreign banks in Thailand have enhanced its international relationships which has had a contribution to the economic growth of Thailand. The United States for instance has remained to be main market for Thailand’s’ commodities and Japan the second in supplies. It also enjoys strong trade links with countries like Japan, Europe, and North America. What contributed to the quick recovery of Thailand’s’ economy was due to the exports to United States and the other Asian countries.

Thailand has been relying on foreign capital to boost most of its development projects. It has been mainly possible for it to receive these finances through the relations it has established with foreign donors through the establishment of these banks (Clark, 1990). Thailand has been able to establish industries and develop its infrastructure, establish industrial plants and improve its technology using donor funding.

Thailand is a member of the international organizations like the world trade organization and the ASEAN free trade area. This has enabled the country to carry out its trade affairs without any restrictions. Thailand has been among the top ten countries in exportation of automobiles with over a million productions of cars on the annual basis (Ross, 1998). Transfer of technology from other countries to Thailand has enabled it to produce better machinery and spare parts which are widely being exported into other countries.

Foreign currency

With foreign banks, foreign notes and currencies can be used and exchange in Thailand. Most of these major transactions are carried out in the foreign banks due to their convenient rates. There has also been an increased use of alternative money like credit and debit cards. International cards are also accepted in Thailand like the American express, visa cards and master cards. ATM machines have also increased in number of through the years and have made any time transactions easier and convenient (Montreevat, 2006). Travelers’ cheques are widely accepted by major shops, hotels and all banks. These travelers’ cheques are mostly given in dollars, sterling pounds and euros to prevent the user from incurring extra charges on the exchange rate.

Regulations of foreign banks

With the various impacts that the entry of foreign banks into Thailand, there is a need for the country to regulate the services of these banks so that they can serve it better. Despite the competitive disadvantages that it might be causing to the nation, the services of these banks cannot be avoided. They have largely impacted on the Thailand’s economic growth and more can be expected if these banks are given more freedom in their operations. The banks should therefore be made more independent to carry out their operations and allowed to open more branches in the country. They can also be utilized so as to provide other services to the country by being given the opportunity to invest in other development projects in the country (Samuel, 2000). Thailand should however not allow these foreign investors to overtake all economic projects in the country; instead they can use them to set a standard in their operations. With foreign investments, there is always new skills and technology, when the skills are studied and acquired by citizens, they can incorporate them into their managerial activities to stimulate growth. Their numbers should also be regulated to a reasonable ratio so that the domestic banks are not wiped out. To enhance the restriction on their numbers, they should revise the policies that have been imposed on them to ensure that they comply with the laws and regulations of the country (Bhopal, 2002). They should also introduce attractive packages to the local banks that will enable them cope up with the rate of competition that is being brought by the foreign banks.

Advantages of foreign banks

With intensified operation of these banks in the country, Thailand will gain from better infrastructural facilities that will be funded by these banks. Roads will be improved and others constructed modern communication technologies will be intensified wherever the banks will be established. Social amenities like hospitals and schools will be improved by the installation of modern facilities and equipments. This will be due to the need of the workers who will include foreigners to have better facilities for their operations. Thailand will also gain by being at first hand to be updated of the recent developments in the field of technology. International banks are always aiming at introducing and utilizing the modern technologies in their operations to serve their customers better. When theses technologies are introduced in these banks, Thailand will have an opportunity to acquire them and utilize them in their various operations. The economic trend and growth data on the international market is always kept by these banks and Thailand can always make comparisons and see where it stands in the world market. This information will also be helpful to the country to make predictions of the future economic trend and making the necessary adjustments. With the introduction of modern schools, modern education systems will be introduced in these schools which will give Thailand an opportunity to test international education.

The international relations will continue to be enhanced with a continual diversity of foreign banks in Thailand (David, 2000). The country will have more trade allies and more membership in other trade organizations. It will have more countries to export its commodities with limited restrictions and also import goods with ease. Foreign banks and other projects will provide good carrier opportunities to the people of Thailand which will help to raise their living standards. The government will earn more in terms of revenue from the duty that will be charged from the numerous established international projects.


Amidst all this positive developments that Thailand is likely to experience especially on the economy, there are some negatives that the country has to be ready for. They will need to intensify their security forces especially on the foreign investment projects. This is due to the different enmities that exist between countries which makes the projects to be a target for the attacks. Terrorists major their terrorist attacks on the interests of the United States and with such projects, Thailand has to be on the watch out to prevent any possible attacks. With many foreign banks in Thailand, the country has to be ready for a diversity of culture that gains its popularity especially by the youth. This may render their cultural values less popular and thus loosing their real identity. Foreign policies will also find their way in Thailand that may negatively impact on Thailand’s economy. Foreign institutions always desire to operate in according to their principles, this will, make the country to either compromise and comply with them or completely eradicate them from their country. This may not always be an easy decision to make in relation to the growth and the relationship that Thailand may desire to establish with the country. Foreign relations will lead to an introduction of foreign commodities in Thailand, when this commodities are preferred to the local ones, it will be a big blow to the local industry. The local social amenities will receive a tight competition from the ones that will be established by the international community, the government will therefore have to improve on them in order to retain their worth. Thailand should also be ready to invest more money to maximize its resources (Cook, 2008). More electricity will be needed to meet the high demands; sufficient roads have to be constructed to avoid any future congestion, modern communication devices need to be installed to meet the current requirements and an improvement on airports and harbor facilities.


From the above analysis, it is clear that the invasion of foreign banks into the soil of Thailand came at the right time when the country needed this service to boost their economy. Maintenance of these relationships has continuously placed Thailand on the world market. It has experienced growth in both the financial and economic sector with a capacity to observe its progress in monetary strength. The various developments have been felt in almost all sectors of the economy. The international relationships that are continuously being enhanced by these projects have allowed a free flow of communication and the need to share ideas. Theses developments should however not make Thailand lag behind in their innovations. They should only make them more intelligent by incorporating the skills from these technologies to build on their knowledge.


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