Financial Sector Master Plan
Phase II (2010 – 2014)
The FSMP Phase I has now come into completion, while financial environment, both domestically and abroad, that has implication for business model of financial institutions, has also changed significantly. Moreover, financial institutions face intensified competition--among peers, with the capital market, and with non-banks, both domestic and foreign,--and face challenges from increased globalization of the economic and financial system, as reflected by the global economic crisis in 2008. In this regard, particular emphasis has been placed on the setting of goals and strategic direction for continuous financial institutions system development, to ensure that challenges arising from the aforementioned developments could be effectively managed.
The global economic crisis clearly demonstrated the importance of the financial system to the overall economy. A country with financial system that is strong and efficient would reap economic benefit, as resource allocation would be efficient and supportive of rapid economic development. Therefore, an assessment of stability and efficiency of the country’s financial institutions system was deemed a necessary step in developing the FSMP Phase II.
Findings from strength, weakness, opportunity and challenge, or the SWOT analysis of Thailand’s financial institutions system, which became inputs in developing the FSMP Phase II, can be summarized as follows.
1) There has been an overall improvement in efficiency and soundness of the system.
2) Operating costs remained high.
3) Range of services expanded, but access gaps remained.
4) Necessary financial infrastructure to support risk management of financial institutions remained inadequate.
From these findings, it could be concluded that efficiency of the Thai financial institutions system has been substantially strengthened over the period. Nevertheless, further improvements could be carried out, and future challenges stemming from the global economic crisis remained. In this regard, future challenges that the Thai financial institutions system must take into account when designing a development framework for the next period include capital flows into Asia, the increasing role of domestic demand vis-à-vis exports as an economic driver, and the need to enhance competitiveness of the Thai economy.
In order to ensure that the Thai financial institutions system continues to gain strength, efficiency, and provides better financial access, as well as able to meet future challenges, the Thai financial institutions system in the future is envisioned to be:
1) A financial institutions system that is efficient, thus ensuring that financial services cost is supportive to economic growth.
2) A financial institutions system that is strong and resilient, able to withstand volatility in the global financial environment.
3) A financial institutions system that is diversified, thus able to provide financial intermediation for a wider group of the population.
4) A financial institutions system that provides financial services in a fair and transparent manner.
Main policies and measures of the FSMP Phase II can be grouped into 3 key pillars.
Pillar 1: Reduce system-wide operating cost
Operating cost of financial institutions reflects efficiency, translating to costs of consumers, while affecting international competitiveness. Important measures under this pillar focus on two operating costs, as follows.
1.1 Regulatory costs.
Measures: Improvement in financial institutions regulations would be based on the principle that such regulatory review would be in favour of higher efficiency and lower cost, without compromising stability and soundness of financial institutions and the economy as well as consumer rights.
1.2 Cost of legacy NPL and NPA.
1) Encourage write-offs of loans classified as doubtful of loss that have been fully provisioned for in line with related accounting standards.
2) Enhance demand for NPA by allowing banks to partner with private firms to work on enhancing attractiveness of foreclosed immovable properties. In the longer-term, when investors and financial system is more ready, measures to encourage introduction of a greater range of products to support trading of NPA could be implemented.
3) Increase the efficiency in trading of NPA by establishing an NPA information centre, and fostering an effective mechanism for foreclosure and subrogation.
Pillar 2: Promote competition and financial access
Strengthened competition is the key mechanism to enhance efficiency of financial institutions. Competition would be fostered through entry of new service providers, as well as expanding business scope of existing service providers. This will help induce competition in price and service quality, as well as increase the opportunity for broader financial access.
2.1 Promote competition in the financial institutions system. Measures to promote competition are stipulated under 5 key principles as follows
2.1.1 Foster a financial institutions system that provides strong and resilient support for the economy under all scenarios.
2.1.2 Encourage financial institutions to become larger in order to reap the benefits of economy of scale and scope.
2.1.3 Promote competition.
2.1.4 Entry of new service providers into the financial institutions system.
2.1.5 Support the role of SFIs.
2.2 Promote financial access for various groups of the population in order to increase the opportunity for micro businesses and low-income individuals to access financial services that are appropriate to their needs at a reasonable price. To achieve this, the following measures are introduced.
2.2.1 Encourage existing commercial banks to adopt business models that are suitable in reaching the group of population that currently lacks the opportunity to access financial services.
2.2.2 Provide opportunities for new microfinance service providers with expertise and good management to enter the market.
2.2.3 Improve and develop infrastructure.
2.2.4 Support the role of SFIs.
Pillar 3: Strengthen financial infrastructure
To promote financial institutions system efficiency, key supporting financial infrastructure must be efficient and complete, especially those relating to credit extension, the core business of financial institutions. Under the FSMP Phase II, there are five areas of financial infrastructure improvement.
3.1 Enhance the capability and tools for risk management of financial institutions.
3.2 Improve the information system for risk management of financial institutions.
3.3 Reviewing financial laws that support risk management of financial institutions.
3.4 Strengthen the information technology (IT) infrastructure and capacity.
3.5 Enhance the capacity of human resource in the financial institutions system.
The Financial Sector Master Plan Phase II