Apisak cools talk of state bank mergers
Tax incentives favour Thai consolidation
The government will not force state-owned banks to merge after cabinet approval of tax incentives to encourage local lenders to consolidate in the hopes of sharpening their competitive edge against foreign lenders and regional rivals, says Finance Minister Apisak Tantivorawong.
Thai banks’ financial position is solid, but they are smaller than regional lenders, he said. This size disadvantage limits businesses.
“The tax incentives encourage consolidation in the banking sector in order to create mega-banks in Thailand,” said Mr Apisak.
He recently said Thailand needs large “champion” banks to be able to compete with foreign banks.
The tax deductions and exemptions to encourage mergers among Thai banks, which will lapse in 2022, are estimated to cost between 600 million and 1.4 billion baht in foregone revenue.
Merged banks can deduct corporate income tax and receive a waiver from value-added tax, specific business tax and revenue stamps.
Banks with total assets valued at more than 4 trillion baht will be allowed to deduct double their expenditures, while those with assets worth between 3 trillion and 4 trillion baht can deduct up to 1.75 times.
Merged banks with assets worth 2-3 trillion baht will be permitted a deduction of 1.5 times, and those with assets valued at 1-2 trillion baht will have a deduction rate of 1.25 times.
In terms of assets, banks in Singapore and Malaysia have assets worth more than 4 trillion baht, while Thailand’s largest lender Bangkok Bank had assets worth 3.08 trillion baht at the end of last year.
“Someone has asked whether we will force state banks to merge, particularly Krungthai Bank [KTB] with TMB Bank [TMB]. The answer is that we don’t offer such measures to consolidate state-run
banks,” said Mr Apisak.
“We don’t intend to force them, the decision rests with their management.”
Banks may feel that they are comfortable and do not need to merge, he said, noting that such mergers always happen after crises.
Bank mergers require high effort from management and the deal consumes time,
while banks might think that they do not want changes as their margins remain high, he said.
The last acquisition in Thai banking industry was in 2011 when Thanachart Bank took over Siam City Bank for more than 60 billion baht.
In the meantime, Bualuang Securities said in a note that KTB, TMB or some
specialised financial institutions including the Small and Medium Enterprise Development Bank of Thailand and Islamic Bank of Thailand would benefit the most from the opportunity for merger and acquisition. The Financial Institutions Development Fund holds the lion’s share in KTB at 55%, while the Finance Ministry owns a 25.9% stake in TMB.