As business opportunities open wider ahead of the launch of the Asean
Economic Community (AEC) in 2015, the four less-developed economies, often
referred to as CLMV (Cambodia, Laos, Myanmar and Vietnam) are among the most
attractive for Thai investors.
At the onset of the journey for Thai
companies looking to extend or relocate production to these neighbouring
countries, awareness of the local financial services environment is critical to
making the right business decision. Three important issues need to be explored:
What is the landscape of CLMV banking industry? How convenient are fund
transfers and foreign exchange? What kinds of services can Thai banks provide
for investors in CLMV markets?
First, banking access in the CLMV
markets is rather limited, which reflects the predominantly cash-based
environment. Banking facilities are limited both in scale and in scope, even
though the numbers of commercial banks are comparable to those in Thailand and
Malaysia. There are fewer than four physical branches per 100,000 adults in
CLMV, compared with 11 in Thailand, Malaysia and Singapore.
The disparity between CLMV and
the three more developed economies is even more stark in terms of access to
ATMs. The number of automated teller machines in Laos and Cambodia is around 15
to 18 times lower than in Thailand, even when adjusted for population size. In
addition, the first ATM in Myanmar was only introduced to the public in Yangon
in November last year.
The usage of cheques is not
widespread either. In Myanmar, investors may have difficulty cashing a cheque
from a different bank since no interbank cheque-clearing system exists. It is
therefore typical to see most transactions in CLMV carried out in cash.
Services offered by domestic
banks in CLMV remain pretty basic savings and lending products. Commercial
banks’ lending rates in CLMV are fairly high compared to those offered in
Thailand. This partly results from relatively high inflation and credit risk.
Banking reform is likely to be
the next hot topic in CLMV to cater for growth and emerging business
requirements. The banking system in Myanmar needs major reform to establish
international business services and links to global financial systems.
Meanwhile, the banking system in Vietnam needs restructuring given that many
banks are in perilous financial condition with sizable non-performing loans and
depleting deposit bases.
Laos, on the other hand, has a
very high interest rate spread which reflects the inefficiency of the financial
system. This situation, if it persists, could discourage potential savers and
impede credit extension.
Secondly, regulations governing
fund transfers are now much more relaxed than before.
Foreign-exchange operations,
except for Myanmar’s, are generally liberalised. Cambodia has no restriction on
purchase and sale of foreign currencies. In fact, Cambodia is a dollarised
economy with more than 80% of business transactions in US dollars, including
deposits and lending. While Laos law does not encourage payment for goods and
services in foreign currency, in practice the Thai baht and US dollar are
preferred for import transactions.
In Myanmar, the US dollar is
readily accepted at shops and is the main currency for international trade,
along with the euro, Singapore dollar, and yen.
Despite Thailand being the second
largest trading partner with Myanmar after China, there is still no direct baht
quote for the kyat.
As these emerging economies are
prone to inflation and some often experience a balance-of-payments deficit,
their local currencies tend to fluctuate more. The Vietnamese dong, for
example, has lost 30% in value since the end of 2006, with dong devaluation by
the State Bank of more than 9% in 2011 alone.
Myanmar, meanwhile, has finally
abandoned the former junta’s artificial peg, which created a massive disparity
between the official and black-market.
Finally, the open atmosphere of
the banking businesses in Cambodia, Laos and Vietnam allows for healthy
participation by Thai banks, along with other foreign commercial banks. Their
main purposes are often to serve corporate customers from home countries who
are investing in CLMV through foreign branches, but some have gone as far as
setting up subsidiaries to serve local customers.
In terms of coverage, Thailand’s
biggest banks have a relatively better presence in CLMV than those from
Malaysia and Singapore, thanks to the long-standing border trade and foreign
investment from Thailand in these countries.
With the strong presence of Thai
banks, the relatively lower lending rate in Thailand, and ease of regulations
on fund transfers on both sides, it is prudent to have funding arrangements in
Thailand and channel these funds through the network of Thai commercial banks
in these countries. Branches of Thai commercial banks are able to offer what
businesses normally require in international trade transactions, including
payments and foreign exchange, trade loans and the issuance of letters of
credit (L/C).
Although the market has not
opened for foreign bank participation, banking in Myanmar is changing fast. At
least four Thai banks are either in operation or have been granted licences to
set up representative offices. Authorities expressed their intention to allow
foreign banks to set up joint ventures by 2014 and to open full banking
operations by 2015.
Under the AEC, central banks
across Asean countries are working together to drive financial service
integration to support intra-regional trading and investment activities. While
full financial liberalisation under the AEC is not due until 2020, progress in
some areas has been made. Authorities are negotiating the common standard for a
Qualified Asean Bank which will allow designated banks to conduct businesses in
every Asean member country. Payment system standards and integration are also
being reviewed.
In the meantime, the network of
Thai banks in the region will facilitate the flow of goods and services through
the regional supply chain, which will become increasingly relevant in the AEC
era.
SCB Economic Intelligence Center
Business & Investment Opportunities
YourVietnamExpert is a division of Saigon Business Corporation Pte Ltd, Incorporated in Singapore since 1994. As Your Business Companion, we propose a range of services in Strategy, Investment and Management, focusing Healthcare and Life Science with expertise in ASEAN. We also propose Higher Education, as a bridge between educational structures and industries, by supporting international programmes. Many thanks for visiting www.yourvietnamexpert.com and/or contacting us at contact@yourvietnamexpert.com
No comments:
Post a Comment