New McKinsey report suggests Thai banking industry can bounce back to profitability, but transformation required
McKinsey today announced the release of its new report “Shaping the future of Thai banking: Reinventing purpose to ignite growth,” which highlights the urgency for the sector to adapt to changing conditions and develop future-ready capabilities to stimulate growth and invigorate profitability by redefining its meaning and purpose.
The report comes at a time when the Thai banking sector has reached a critical inflection point. Domestically, Thai banks are trading at a significant discount to the rest of the economy where its 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.
Looking more regionally, Thailand’s share of total ASEAN banking market capitalization has declined from 16 percent in 2009 to nine percent in 2021. On the list of the top 15 most valuable banks in the region, several Thai banks have been displaced by banks in Indonesia, Vietnam, and the Philippines.
Now is a prime opportunity for the Thai banking industry to reposition itself in the local economy. Made possible given the changing nature of the Thai economy and national priorities, changing demographics and consumer preferences as well as rapidly evolving technology infrastructure and technology adoption.
“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”
The risks of not acting are high, but so are the potential rewards of a successful sector transformation. To stay relevant in the coming decade, McKinsey identifies ten imperatives in the form of a four-parted transformation strategy aimed to help Thai banks find new meaning and purpose:
“The Thai banking sector is at a crossroads,” commented 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. 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.”
See the full report here.