Thailand's banks should adapt to changing economic and social conditions by developing capabilities to stimulate growth and invigorate profitability by redefining their meaning and purpose, according to a report by global management consultancy McKinsey & Company.
The report, "Shaping the future of Thai banking: Reinventing purpose to ignite growth", comes as the country's banking sector has reached an inflection point, said McKinsey.
Domestically, the country's banks are trading at a significant discount to the rest of the economy, with the price-to-book ratio of the top five banks at 0.7, compared with 1.8 for stocks listed on the Stock Exchange of Thailand overall, according to the report.
Regionally, Thailand's share of Asean's overall banking market capitalisation has declined from 16% in 2009 to 9% last year.
"Thai banks have an opportunity to support the country's economic growth and development," said Wajid Ahmed, a partner at McKinsey.
"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 small businesses' access to financing by leveraging digital, data and analytics."
To stay relevant in the coming decade, McKinsey identified 10 factors in the form of a four-pronged transformation strategy that the country's banks could use to redefine the role of banking.
The four-pronged strategy calls for banks to support sustainable economic growth, create nimble business models, innovate customer and employee experiences to meet evolving needs and preferences, and build future-ready capabilities.
"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 reclaim its position as a regional banking 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."
According to Mr Thomas, in 2022 the world faces a highly unstable environment because of the after-effects of Covid-19 and new geopolitical trends, leading to volatility in commodity prices, supply chains, monetary policies, the labour market and asset prices.
The impact of this volatility varies widely across countries and regions.
The tumultuous year prompted a new era in the banking industry worldwide. Economic profit became positive in 2022, with margins and risk costs rising, while valuation corrections affected fintech firms and large tech firms, and geopolitical changes led to the potential regionalisation of banking, he said.
Looking ahead, Mr Thomas said there are two possible macroeconomic and banking scenarios globally: inflationary growth and stagflation, leading either to smaller gains or a larger downside for banking economics.
"The magnitude and the pace of the profit impact will depend on the scenarios and the type of bank, but in most cases, temporary tailwinds will turn into headwinds in the midterm," he said.
As with global banks, Mr Thomas said Thai banks have a dual task ahead -- strengthen short-term resilience while investing in long-term moves, including sustainable and inclusive growth.
