New bank players from Thai, Malaysia agreement face limited growth prospects

The latest licensed banks in Thailand have loan market share below 0.5%. 

A new agreement between the Thai and Malaysian central banks that allows local lenders from each market to operate into the other market will have little effect on each sector’s competitive landscapes, reported Fitch Ratings.

On 14 September, the financial regulators of Thailand and Malaysia made an agreement under the ASEAN Banking Integration Framework (ABIF) that allows up to three banks from each market to operate in the other market. 

However, Fitch expected growth opportunities for banks to be limited, noting that the financial sectors in Malaysia and Thailand are already well-penetrated.

As an example, Fitch zoomed in on Thailand, which previously licensed new subsidiary banks during 2013-2015. However, all three new entrants remain small players, with loan market shares of below 0.5%. 

On the upside, the banking sector should still present reasonable opportunities for the new lenders to achieve through-the-cycle profitability. Any structural weaknesses are manageable, the ratings agency added.

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

“We expect that the impetus for the agreement was demand from banks, and that 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,” the ratings agency noted, adding that Malaysia has already completed its ABIF negotiations with Indonesia and the Philippines.