Thai banks called to supercharge profitability by enacting future-oriented strategy

They’ve lagged behind their peers, with market cap falling to just 8% of ASEAN.

Thailand’s banking sector has the chance to change its profitability chances and reposition itself in Southeast Asia–but only if they focus on improving three key factors, according to the latest report by McKinsey & Co.

“Thai banks have an opportunity to support the country’s economic growth and development.” Wajid Ahmed, Partner at McKinsey said. “To do this effectively will require focusing on three imperatives: rethinking the corporate banking agenda to empower ‘new economy’ businesses; boosting sustainable finance to help reach Thailand’s net-zero targets; and enhancing SMEs’ access to financing by leveraging digital, data, and analytics.”

Looking at its performance compared to regional peers, Thailand has lagged behind other nations. Its share of total ASEAN banking market capitalization has declined from 16% in 2009 to 9% in 2021. In the list of top 15 most valuable banks in Southeast Asia, several Thai banks have been displaced by lenders from Indonesia, Vietnam, and the Philippines, McKinsey & Co. noted in a report.

Domestically, Thai banks are also noted to be trading at a significant discount to the rest of the economy. McKinsey reported that the price-to-book (P/B) ratio of the top five banks is 0.7 compared to 1.8 for overall stocks listed on the Stock Exchange of Thailand.

“The Thai banking sector is at a crossroads,” said Renny Thomas, senior partner at McKinsey and leader of its banking practice in Asia Pacific. “If the industry can act quickly and decisively, it can - once again - reclaim its position as a regional bank leader.”

Four parts, ten imperatives
McKinsey identified ten imperatives, divided into a four-part transformation strategy, that should help Thai banks find new meaning and purpose.

The first calls for banks to support sustainable economic growth. This involves rethinking the corporate banking agenda to empower “new economy” businesses;
boosting sustainable finance to help reach Thailand’s net-zero targets; and enhancing SME banking with digital, data, and analytics.

The second part requires banks to create nimble, specialized business models. This involves building specialized wealth-management business models to serve different customer segments; excelling in consumer finance in the digital age; and exploring partnerships to create a customer-centric, ecosystem- and platform-led neo-bank.

Next, McKinsey said that Thai banks should move to develop innovative customer and employee experiences to meet evolving preferences. Under these, banks are called to reimagine propositions and customer experience through personalization at scale; and reinvent ways of working & employee value proposition.

The final part involves building future-ready capabilities. This includes accelerating the adoption of new technology; and strengthening cybersecurity to combat the “dark side" of digital.

“By embracing new approaches, innovative service models, and digital-led capabilities and enablers, Thailand’s banks will be better equipped to face the inevitabilities of changing demographics, consumer preferences and fast-evolving technology infrastructures. The risks of not acting—and the potential rewards of a successful transformation—are high,” Thomas concluded.