April 27, 2024

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Thailand has long remained an untapped market for South Korean financial firms since the exodus of the financial crisis in the late 1990s. Now Kakao Bank, the nation’s No. 1 Internet-only bank, is eyeing an expansion into the burgeoning digital banking market in Southeast Asia's second-largest economy.

Earlier this month, Thailand’s Ministry of Finance confirmed regulations for authorizing virtual banks, the equivalent of internet lenders in Korea.

According to the regulations, authorized lenders will be able to offer full banking services, ranging from deposit-taking to credit transactions. Lenders must have a registered capital of between 5 billion baht ($138 million) and 10 billion baht.

The Bank of Thailand will receive applications from Wednesday to Sept. 10. After a nine-month screening process, the new banks will be able to begin operations within one year. Though the BOT had decided to grant three virtual banking licenses, the later announcement showed the number of licenses would not be limited.

"It is expected that virtual banks will bring about better customer experience and stimulate healthy competition in the Thai financial institution system, without posing risks to financial stability," the Bank of Thailand explained.

The latest measure opens up possibilities for Kakao Bank, which has been looking to make its way into Thailand.

The internet lender has teamed up with a local counterpart.

In June, Kakao Bank announced it signed a memorandum of understanding with Thailand's finance giant SCBX to form a consortium to acquire the license to operate a virtual bank. The Siam Commercial Bank, Thailand's leading lender, operates under SCBX.

The Korean lender aims to acquire a minimum of 20 percent of the shares in the consortium, Kakao Bank announced at the time.

If the consortium successfully earns the license, Kakao Bank will be the first among the three internet-only banks in Korea -- Kakao Bank, K bank, and Toss Bank -- to tap into an overseas market.

“Kakao Bank will cooperate with SCBX to apply for the license approval in line with the schedule announced by the central bank of Thailand,” an official from Kakao Bank said.

“We will expand our business by implanting ‘digital finance DNA’ (into) the Southeast Asian market, based on our technologies of operating contactless finance (services) and digital platforms,” the official said.

If all goes as planned, Kakao Bank will also become the first Korean lender to launch a business in Thailand in nearly two decades. Though local finance firms such as Samsung Life Insurance, KB Kookmin Card and Daol Securities have expanded their businesses into the country, no commercial lender has yet earned approval for business there in recent years.

The Korea Development Bank, South Korea's state lender, opened an office in Bangkok in 2013 but has yet to earn a sales license.

“Korean banks fled Thailand following the Asian Financial Crisis in 1998. After the mass departure, there has been an unwritten law in Thailand that bans them from returning to the country. Also, Thailand is known to be a country with a high bar for foreign banks overall, not just for those from Korea,” an official from a local finance firm said.

The last foreign commercial banks to have earned the license for operation in Thailand were the Australia and New Zealand Banking Group and Japan's Sumitomo Mitsui Trust Bank Ltd in 2015. The Thai market has not seen new foreign players for nearly 10 years since then.

Korean financial authorities are also paying close attention to Kakao Bank’s expansion into Thailand, as it could signal a new start for Korean lenders to venture into the Thai market.

“I am aware that the Thai central bank is working on new policies to elevate its finance sector, including the introduction of virtual banks,” Financial Services Commission Vice Chairman Kim So-young said when he met with Bank of Thailand Governor Sethaput Suthiwartnarueput on Feb. 28 during his visit to the country.

"A local finance firm's experience of succeeding in Korea could contribute to the growth of Thailand's finance industry if it earns the license approval to operate a virtual bank in the country," Kim said, calling for the Thai authorities' support.

By Im Eun-byel (silverstar@heraldcorp.com)
The Korea Herald