Fitch: BNM-BoT deal reflects expansion


THE agreement between central banks of Malaysia and Thailand under the Asean Banking Integration Framework (ABIF) is in line with the trend of bank regionalisation but not likely to substantially alter the sector’s competitive landscape, says Fitch Ratings.

The agreement allows up to three banks from each market to operate in the other market, but Fitch expects growth opportunities to be limited.

“Thailand previously licensed new subsidiary banks during 2013-2015. However, all three new entrants from that last round of liberalisation remain small players, with loan market shares of below 0.5%,” Fitch said in a statement yesterday.

According to Fitch, the financial sectors in Malaysia and Thailand are already well-penetrated with private-sector credit/GDP of over 130% as at 2020.

“The banking-sector operating environment score in both countries is ‘bbb’, which suggests that there are reasonable opportunities for banks to achieve through-the-cycle profitability and that any structural weaknesses are manageable,” it stated.

However, Fitch said the agreement is just one part of the regionalisation strategy that both Malaysian and Thailand banks are pursuing.

“We expect that the impetus for the agreement was demand from banks and there will be more bilateral agreements to come. In particular, Thailand is still in ABIF negotiations with Indonesia, the Philippines, and Myanmar — countries that offer good long-term growth prospects, although potentially also at higher risk,” Fitch added.

Meanwhile, Malaysia has completed its ABIF negotiations with Indonesia and the Philippines.

“Even outside the ABIF process, banks from both countries have already invested regionally. However, the agreement offers another expansion avenue at preferential terms for equity requirements and branch restrictions than a normal foreign-bank licence,” it further said.

Banking institutions from Thailand and Malaysia are invited to indicate their interest to be a qualified Asean bank (QAB) in Malaysia and Thailand, Bank Negara Malaysia (BNM) and the Bank of Thailand (BoT) said in a joint statement last week. According to both banks, the bilateral arrangement is pursuant to ABIF between BNM and BoT which was concluded in April 2019.

“The QABs are envisioned to facilitate greater intra-Asean trade and investment in the region, in accordance with the Asean Economic Community Blueprint 2025 that aims to create an integrated and highly cohesive Asean economy,

“To ensure the financial stability of both countries, a QAB candidate, whether a new entrant or an existing bank in the host country, must be a strong and well-managed bank that has its interest endorsed by the home country’s regulator and comply with the host country’s prudential requirements,” the banks said.

A successful QAB candidate will enjoy market access and operational flexibilities accorded under the bilateral arrangement.