Credit growth accelerated to 11.3 percent, supportive of economic growth, while banks, fund mobilization via deposits and bills of exchange accelerated to 3.6 percent in August, allowing the ratio of loan to deposits, including bills of exchange, to remain stable. In sum, over the years, better risk management, improved asset quality, greater provisioning coverage, and enhanced regulatory and supervisory framework have significantly improved the overall risk profile of the Thai banking sector. Fourthly, despite much weaker global outlook, Thailand’s economic conditions are expected to be well-supported. GDP growth for the first half of this year stood at 5.7 percent, with inflation contained through appropriate monetary policy and aided by the fiscal package which delayed some utility price increase for around six months. While the expected slower global growth would pose downside risk to domestic growth via a slowdown in exports, Thailand has a considerable policy room, especially fiscal policy, which helps to cushion the impact, by employing macroeconomic and prudential measures to support growth and maintain financial stability. Nevertheless, we cannot afford to be complacent given the severity of the global turmoil. The Bank of Thailand has asked banks to conduct stress-testing to ensure banks are alert to potential impact of downside risks. Recent stress-testing, which covers credit market, and liquidity risks, linked to a macroeconomic impact scenario, confirms the resiliency of the Thai banking sector. On the regulatory front, considerable progress has been made to increase the efficiency, adhere to international best practices, strengthen banks, capital position and enhance risk management practices.
The enhanced strength and increased competition has fostered continued profitability as well as expansion of economies of scale and scope in the banking system, with wider range of products to serve the public. Going forward, Phase II of the Financial Sector Master Plan seeks to build further on this process, and ensure that the Thai banking system can meet future challenges. These challenges include globalisation and technological development which will increase competition in retail banking. The Thai economy will become more open, with increasing intra-regional trade and investment, due to the growing importance of regional economies in the world economy as well as various trade and investment treaties. Hence, financial institutions need to not only build resiliency and ability to adjust to these changes, but also build capacity to serve clients which will have growing needs for international businesses and risk management. Moreover, demographic factors point to an aging-society in the future, thus increasing demand for wealth management. The regulatory framework will continue to evolve with due regard to international standards and local needs. Indeed, with the current global financial turmoil, each of these challenges will become even more poignant in the future. The implication of these challenges to Thai financial institutions is that they must enhance their operating efficiency and risk management, while also becoming more responsive to clients, with fair and transparent treatment. Given these challenges, what do we envisage are the key features of the future landscape?