Impact of Foreign Entry in Banking Sector:
Case of Thailand during 1999 ‒ 2014

Wanxue Lu
Fumiharu Mieno

Japan-ASEAN Transdisciplinary Studies Working Paper Series No.1
February 2018

Impact of Foreign Entry in Banking Sector:
Case of Thailand during 1999 - 2014

Wanxue Lu* andFumiharu Mieno**

Abstract
The paper examines the effect of foreign capital entry on the cost and profit structureof commercial banking in Thailand with using a bank-level panel data in 1999 - 2014.
We distinguish the dimensions of the market-level effect and the individual bank-level
effect in foreign entry and find that an increase of bank-level foreign ownership results
in increase of interest rate spread and improvement of loan quality, but at the same time,increase of operational expenses. On the other hand, the market-level foreign bank entry
brings an increase of interest rate spread, non-interest income and reduce of operation
expenses, realizing higher ROA as a result. Overall, foreign bank entry improves
banking performance.

JEL Classification Codes: G21, O16, O53

Keywords: foreign entry, bank performance, financial regulation, Thailand* Ph.D. Candidate, Graduate School of Asian and African Area Studies, Kyoto University,
E-mail: luwanxue @asafas.kyoto-u.ac.jp** Professor, Center for Southeast Asian Studies, Kyoto University, E-mail: fmieno@cseas.kyoto-u.ac.jp

11. Introduction
ASEAN regional formation process has been accelerated in recent years. For thebanking sector, ASEAN Banking Integration Framework (ABIF) is endorsed in 2014
under ASEAN Economic Community, aiming at realizing better access to regional
market and flexible operation. As one aspect of regionalization, mutual concern onbanking sector in ASEAN members has enlarged, and the entry into banking market in
ASEAN countries from the world and Asian neighbors has increased in recent years. In
Thailand, for example, the number of foreign banks counted for nine among the total
nineteen commercial banks; seven are based in Asian neighbor countries, and four are
new players entered in the past 4 years.
The paper aims to examine the effects of foreign capital entry in banking industry,
focusing on the case of Thailand. The analysis are based on originally constructed
micro database covering most of all commercial banks in 1999-2014. With the database
we observes a long period of restructure and deregulation process in financial sector
after Asian financial crisis (AFC) in 1997.
Thailand is one of the most typical cases that financial reform after AFC purport
to modernize banking industry, to make competitive market, by inviting foreign capital
to commercial banks.

Before the late 1990s, the regulation on foreign bank entry wasstrict. Foreign bank was not allowed to get a full banking license, only to operate as aforeign branch. The indigenous ownership structure of commercial banking sector has
been criticized as hotbed of weak corporate governance, inefficient connected lending,and corruption, which is regarded as one of the major cause of AFC.
Facing AFC in1997, many financial companies and commercial banks haveexperienced the process of bankruptcies, government control and foreign financial
institutions’ acquisition. Encouraged by international financial institutions, the financial
reforms with reorganization and deregulation of the sector was implemented to realize
more transparent, competitive and self-disciplined financial system. Through the periodof reform, Thai banking sector had gone through dramatic change of their ownership
structure even in surviving banks. In most cases, the capital share by foreign investors
and foreign banks increased drastically, the weight of traditional founder tycoon
2

families declined. Until the mid-2010s, two decades later since then, the scenery of Thaibank’s ownership have drastically changed; foreign capital entry has sharply increased
in both forms of new banking institution and of investment to existing banks.
For such a drastic change of banking ownership in Asian countries such as
Thailand, studies to investigate foreign entry effects in the region has been limited.
And, most of a few studies focuses only on the early stage of the reforms before mid2000s (Unite and Sullivan, 2003; Okuda and Rungsomboon, 2007).
The paper focuses on a longer period of 1999 - 2014, and aims to investigate theeffect of banks’ ownership change and foreign entry on the performance and theefficiency, revisiting the arguments in relevant literatures that foreign entry may render
more competitive market condition and overall improvement of banks performance ina long run. In the analysis we observe difference of the performance between domestic
and foreign bank, market structure and scale effect.
The rest of the paper is organized as follows. Section 2 reviews the literatures
related to foreign entry effect in banking market. Section 3 makes a descriptive
observation on change of Thai banking sector since AFC. Section 4 discusses themethodology on the empirical study and the measures on foreign entry. Section 5
examine the result of estimation, and Section 6 conclude the paper.

2. Literature Review
Various existing studies on the impact of foreign bank entry on domestic banking
market can be classified by three dimensions: (1) whether the observation case is crosscountry level or a sing-country; (2) whether the observation term is short or long; and(3) whether research question focus on the restriction of foreign bank entry or theevolution of foreign ownership.
Cross-country studies uses a panel data of financial statements of banks,
represented by Claessens et al. (2001). Majority of single country studies discusses
European and Latin American countries case such as Bhattacharaya (1993 & 1997),
Clarke et al. (1999), Barajas et al. (2000).

As the studies on Asian countries, major

studies are Unite et al. (2003), Chantapong (2005), Okuda et al. (2007).
3

Claessens et al. (2001) came up with a most comprehensive model to investigate
effect of foreign bank entry from overall banking performance across country in rather
long-term (1988 to 1995). Based on a large sample of 7900 banks in 80 countries from,they found that foreign bank penetration may throw an effect on promoting the domestic
banks to operate more efficiency and heightening the competition in a long term. It’s
supported by the empirical results that foreign bank entry is associated with a reductionin the profitability, business diversification and operational cost. They assert that overall,foreign bank entry may improve the functioning of national banking market in a longrun. Generally, weakness of cross country is that they neglect the factor of discrepancies
on the economic environment and regulatory system.
In single country studies side, Clarke et al. (1999) analyze the effect of foreign
entry on the domestic banking sector of Argentina. Through examining an intense
period of foreign entry from 1995 to 1997, they find that domestic banks throughoutthat period experienced declining net margins and increasing operational cost. They
also point out that local banks still keep their advantages for a shot run despite of direct
foreign competition, excluding in the areas of manufacturing firms and mortgage
lending that foreign banks concentrated in. Unite and Sullivan (2003) discusses theeffects of domestic Philippine banks to the relaxation of foreign entry regulations that
occurred in the Philippines for a period from 1990 to 1998. They adopt two type of
foreign entry indices: (1) the foreign bank entry ratio of numbers of foreign banks inthe market; (2) the change of foreign ownership as the measurement of foreign presence.
By investigating the banking performance through three different models with areference of the ownership structure of banks, they argued that foreign bank entry is
inversely related to interest rate spreads and profits in a short run, but only in cases
when those banks are affiliated to a domestic family business group. Non-lending
activities decreased along with the higher foreign participation as well as the operation
cost increase. They point out greater foreign monitoring may force domestic banks tofocus on traditional banking business and input more on intermediation cost, labor costand equipment cost. Generally, foreign entry corresponds with improvements on
operating efficiencies but a deterioration of risk control.
4Chantapong (2005) and Okuda and Rungsomboon (2007) study on Thai banking
market. By pooling cross-bank time series data with the major balance sheet and income
statement ratios, Chantapong (2005) proved that all banks were found to have reduced
their credit exposure during the crisis years, and to have gradually improved theirprofitability during the post-crisis years in Thailand from 1995 to 2000. Okuda andRungsomboon (2007) investigate the impact of foreign ownership change on Thaidomestic banks by using panel data on 17 domestic commercial banks from 1990 to
2002. They also investigate the effect of financial regulation and market concentration.
They find that an increase in foreign bank presence leads to a rise in larger operational
cost and smaller interest spreads, resulting a decline in profits of domestic banks.
The limitation of the above studies exists mainly in their too short observation
period compared with the long and complicated process Thailand experienced. Before
AFC, foreign investment in Thai domestic banking is rare for a long time. The firstforeign bank in Thailand appeared in 1998 (after AFC), and the door of full-blown
foreign entry became open since then. Okuda and Rungsomboon (2007) argues basedon the data until 2002 that increased competition from foreign banks negatively affects
domestic banks. The blown field and green field entry however, accelerated since themid-2000s in Thailand.

Considering the observations in Claessens et al. (2001) andother studies that the change of domestic bank performance by foreign entry occurs ina long term, there is a room for further research on what the foreign entry brought toThai banking sector with information of longer span.
On the theoretical side, a few studies discuss the mechanism that foreign entry
brings the change of local banking sector and market. Levine (1996) provides a detailed
theoretical illustration on the merit and demerit of foreign bank entry. It will enhancelinkage from home country to international financial market and introduce more foreign
investment. The entry strengthens market competition and enable local banks advanced
management skills and technology. And Levine (1996) also assert that the entry
expands international transactions to stimulate the improvement of financial
supervisory and regulatory system.
According to Levine (1996), the problems of foreign entry to banking sector are
5found in various aspects. Foreign banks may dominate local market due to its skills andcapital strength.

It may incur capital flight through stronger linkage to international

market. Banking service may come to concentrate on multinational enterprises andwealthy class. And even, the presence of powerful foreign banks may throw a threat tothe healthy and stabile local financial market on account of weak supervisory andregulatory system in host country.

3. The Thai Banking Sector and Foreign Entry
3.1 Financial Reforms and Regulatory Policy since 2000s
In Thailand, the overheating economy with capital flow deregulation, asset bubbles,and fixed exchange rate system since the late 1980s, resulted in a shortage of foreign
reserve and following destructive financial crisis in 1997. One-third of commercial
banks were nationalized under the rescue scheme, while another one-third werebankrupted or acquired as foreign banking capital.
Facing this crisis, the government tried to coordinate the disposal of nonperformance loans and the reconstruction of banking sectors. On the advice ofinternational development institutions such as the World Bank or IMF, the government
introduced rigid and transparent banking regulation, and at the same time, attracted thenecessary capital to commercial banks outside the business families' groups, evendrawing on foreign capital by loosening the foreign ownership regulations.
Through the reconstruction process, both banking institutions and nonperforming loans were restored in around 2003-4. In 2004, under the Thaksin
government, the financial authorities released a “Financial Master Plan,” directing
Thailand toward “a developed competitive, efficient, stable and balanced financial
system” by: (1) restricting financial conglomerates, (2) encouraging foreign bank entry(converting branches into full-banks incorporated in Thailand), and (3) creating the“retail bank,” targeting small-sized lending. This scheme was restrictive for domestic
business group capital, and encouraged new entry for market competition. In 2010, a
new “Financial Master Plan II” was released by the financial authority, emphasizing
further strengthening of foreign bank entry and financial infrastructure. The new wave
6

of foreign bank entry started in recent years; four new foreign banks have now been
licensed, and two “retail banks” were upgraded to commercial banks (for details, please
see Appendix 1).
Although these master plans introduce visions of encouraging foreign bank entry,
and promoting banking operation efficiency and market competition,

the commercialbank license is not yet fully open to foreign capital and banks, requiring rather strictlegal fulfillments to be approved. Financial Business Act B.E. 2551 (2008) requires
foreign investors to get permission from the Bank of Thailand, (in case to hold morethan a 25% stake in a domestic bank) or from the Ministry of Finance (in case the ratio
coming to over 49%). The case of new entries from Japan, Australia and China in 2013
was brought by a new government notification1 under the Financial Business Act.

3.2 Evolution of Foreign Ownership in the Banking Sector
Appendix 1 pictures the process of reorganization of commercial banks that occurred
between 1997 and 2015. It indicates that the 4-5 large-sized banks have been relatively
stable, even during the period of crisis. Bangkok Bank, Kasikorn Bank (formerly Thai
Farmers Bank), Siam Commercial Bank, and Ayutthaya Bank all sustained theiroperations. Krung Thai Bank also sustained their operations, and absorbed a few
problematic banks for rescue purposes, in the role of state bank.
The damages were vast for the middle-sized banks 2 .

Most of them werebankrupted, and either nationalized or acquired by larger or newly entering foreignbanks. Small-sized banks such as Nakornthon Bank or Bank of Asia were acquired byforeign banking capitals.
In the late 2000s, after the first “Financial Master Plan”, the entry of foreignbanks strengthened; Standard Chartered Banks integrated its local branch and acquired
former Nakornthon Bank; United Overseas Bank's (UOB, Singapore) total assets
jumped as they absorbed multiple small local banks; CMBT (Malaysia) newly entered1

Notification of Ministry of Finance Re: Rules, Procedures, and Conditions for the Establishment of New
Foreign Commercial Bank’s Subsidiary
2First Bangkok City Bank, Bangkok Bank of Commerce, Thai Military Bank, The Union Bank of Bangkok,
Siam City Bank, and Bangkok Metropolitan Bank
7

the market by acquiring a local bank.
This new wave of entry has further strengthened in the 2010s; Bank of Tokyo
Mitsubishi acquired Bank of Ayutthaya, the fifth largest local bank in 2013. One
Japanese, one Australian/New Zealand, and two Chinese banks were newly licensed in2015.
Table 1 shows the comparison of the list and market shares of each commercial
banks between 1997 and 2013. The gray-colored highlighted banks in the portion 2013indicate that they are pure subsidiaries of foreign banks. The total share in total asset
counts as 15.4% of the total domestic sector in 2013, while no commercial bank were
subsidiaries in domestic sector in 1997. When comparing the total commercial banking
sector (domestic banks + foreign bank branches), the foreign bank share was 19.3% in
1997, while it increased to 26.9% (13.5%+13.4%) in 2013. It looks like a moderateincrease, in spite of active foreign entry for the last 15 years. This also suggests that asubstantial portion of foreign bank entry to domestic sector was conversions of the legal
status from foreign branch to domestic bank.
Another aspect of foreign capital is, however, surprisingly remarkable. Appendix
2 shows the percentage of foreign capital in the total shareholdings of each bank. Afterthe crisis, even large major banks have largely accepted foreign capital. For example,
Bangkok Bank was more than 40% owned by foreigners in the 2000s, and in Siam
Commercial Bank's case, the foreign share was more than 50% in the same period.
These facts suggest that the forging of capital for entry is shaped into various forms,
and the function of the banking sector should be examined from various angles.
Tracing the change of market competition condition from Table 1, we find asurprising fact that they have not drastically changed, and even the trend of market
concentration seems to have occurred in this decade and a half from AFC. Table 1 tells
us that the lineup of top five banks is almost unchanged, and their total assets occupy
over 70% of the domestic banking sector. This share was 70.0% in 1997, but it increased
to 74.5% by 2013.

The market has become more oligopolistic through the process offoreign entry. It looks that the theoretical and policy logic that new foreign entry inducescompetition to the banking market have not work in the experience in Thailand.
83.3 Foreigner’s Presence and Market Concentration
Figure 1 shows the trend of foreign presence in the market in average level and of
market concentration in domestic commercial bank sector. We calculate three types ofindices for the magnitude of foreign capital presence. First two are associated withpresence of foreign subsidiary. FDRN and FDRA shows foreign subsidiary bank market
shares in terms of numbers and aggregated total assets, respectively. The third indicator
is associated with foreign ownership share of in domestic banks. FOWA indicates theannual weighted average of each bank’s foreign ownership (weighted by bank assets).
The average Herfindahl–Hirschman Index (HHI) is shown as the indicator of market
concentration.
The Thai banking sector is highly concentrated, and has been for a long while,with the assets of the top four banks (Big 4) accounting for an average of 65% of allcommercial banks. The average HHI is 0.13 for the past 16 years. From Figure 1, we
can see that there is a constant significant improvement in market concentration from2002 to 2007, when the government carried out a series of financial reforms, including
establishing several retail banks to amend the system of raising funds for small andmedium enterprises under Financial Master Plan I.
Foreign penetration was encouraged during the restructuring process right after
the 1997 financial crisis. In 1999, foreign ownership share (FOWA) was around 20%,and this was mainly coming from European and Singaporean financial institutions.
Except for one state-owned bank, the other three of the top four banks brought in an
average of around 30% foreign ownership during this time. The increase of foreign
ownership has been accelerated since then, and FOWA reached its peak of 45% rightbefore the global financial crisis in 2007-08. We find that the inflow of foreign capital
was mainly directed towards the larger banks, rather than small and medium banks
during this period, which resulted in greater concentration. Thus, we suppose that
increasing foreign ownership may intensify market concentration and enrich majorbanks’ dominance over the financial market. Foreign ownership was maintained at ahigh level of over 40% even after the Global Financial Crisis (GFC) in 2008, until
9recently.
Meanwhile, there are four small and medium sized banks that were acquired byforeign banks to mark a foreign entry boom from 1998 to 1999, and after that, incontrast there was not any market entry by foreign banks in the Thai banking sector
until 2005. After the GFC in 2008, more and more foreign bank players fromneighboring countries, especially Japan and China, entered the Thai market, instead ofthe major foreign bank players from western countries who had come before.

4. Methodology
4.1. Basic Formula for the Estimation
We uses bank-level panel data of domestic commercial banks in Thailand from 1999 to2014, including local private banks, state-owned banks, joint-venture banks, andforeign subsidiaries3, constituting an average of more than 95% of the total assets of
the whole commercial banking sector. The policy change for foreign entry cued by the
restructure process from AFC, and large investment by foreign capital and banks
appeared since 1999. We set 1999 as the start date.
We capture banking performance from the three aspects of profitability, revenue
and cost. The observation are based on the following profit identical equation.
Π=

REVENUEnet interest income+ non-interest income(Interest Rate Spread, IRS)
(NII)

-

COST
operational expense – loan loss reserve
(OE)
(LLR)
(1)

3

According to the classification by the Financial Institution Business Act B.E.2551 in 2008, commercial banks in
Thailand are comprised of Thai commercial banks, Foreign Commercial Bank Branches, and Foreign Commercial
Bank Subsidiaries. Further more, Thai commercial banks can be divided into local private banks, state-ownedbanks, and joint-venture banks (with more than 50% foreign ownership). Besides these, there are Retail Banks thathave a narrow business scope focusing on small and medium enterprises due to a limitation of bank license. In thispaper, our sample covers most Thai commercial banks and foreign commercial bank subsidiaries. Foreign
Commercial Bank Branches and Retail Banks (because of their small size and limited business scope) and areoutside of our consideration. If given without specific explanation, “all commercial banks” in this paper covers thesame range of Thai commercial banks and Foreign Commercial Bank Subsidiaries.
10

In the estimation, we normalize them by total asset, thus Π are expressed as Return on
Asset (ROA).

The five variables, ROA, IRS, NII OE and LLR are used for dependent

variables.
We will regress them on factors of foreign entry and market concentration as wellas other control variables on bank-specific, market and macroeconomic factors. As forforeign entry, we hypnotize two types of impact pathway: market-level impact andindividual bank-level effect.

The estimation equations are expressed as follows,!"# = %& + () *!+# + (, -!+"# + (. -"# + (/ *# + 0"#(2)

Where !"# are above five dependent variables associated with bank’s profitability,
revenue and cost. *!+# is the measure of foreign bank entry identified by years
and common to all the banks in the market which illustrate market-level effects,-!+"# refers to the foreign factor identified by individual bank which represents
individual bank-level effect, -"# is other bank-specific factors and *# is othermarket indicators, including macro economy variables:
The sample of Thai banks contains some natures suitable for the estimation byeconometrics. During the sample period, the total number of commercial banks has
been almost unchanged counting for 20 banks, The financial regulatory and supervisionsystem are uniformed across whole country. These condition minimizes the problemof heterogeneity in the sample.

4.2. Market Impact vs. Individual Bank Effect
In most existing studies, these two perspective are discussed without clear distinction.
In the analysis, we distinguish two impact pathways. Firstly, foreign entry into thebanking industry includes market penetration by foreign individual and institutional
investors. Among them, activity by a foreign bank generally has a high profile, owing
to direct competition with local players, and draws more attention from financial
supervisory and regulatory authorities. It may incur the market competition andenhancement of regulation which improve market function.
11

Secondly, foreign entry in forms of acquisition of indigenous banks or partial
equity share may improve a bank’s monitoring activities and inhibit inside managers’
behavior, and find motivation for modernizing banking governance and operations.
For such a hypothesis, there are counter arguments. Yeyati and Micco (2007) argue thatbanks controlled by foreign institutions in developing countries (typically neighboring
countries) are generally subsidiaries of non-financial firms, and do not benefit from any
greater financial sophistication.

4.3. Measurement of Foreign Entry
In a cross country analysis, Claessens et al. (2001) adopt the ratio of foreign banknumbers or assets to total commercial banks, based on the identification of ‘foreignbank’ by a certain criteria. That is, foreign bank entry is captured as the share of
numbers of foreign banks to total bank numbers, or the ratio of assets of foreign banks
to total bank assets. For the identification of foreign bank, Claessens et al. (2001) define
is as a bank that has at least 50% foreign ownership. And many studies for single
country analysis follow the same measures of foreign entry.
Identification problem is a key for our study. A few single country studies, adopt
foreign ownership share as a measure foreign entry, instead oftranscendental

information (e.g. Okuda and Rungsomboon 2007). Most analyses with foreign
ownership share indicator focus on a micro bank-level perspective.
In case ofThailand, however, the identification is not so simple. In the largebank layer, for example, while the foreign ownership of Siam Commercial Bank had
exceeded 50% for merely 5 years during the whole sample period of 16 years, its firstmajority shareholder (Bureau of the Crown Property and Group) maintains
incomparable influence on the banking governance. Likewise, foreign ownership of
TMB Bank exceeded 50% for only one year (2007), by less than 3%. Among that
foreign share, its top foreign shareholder owns a 25% stake, and the rest are scatteredfrom various countries. These circumstances occurred in the process of restructuringbanking sector from AFC, and under special approval from the authority.
In our estimation, we prepare multiple indices for foreign presence in banking
12sector. For the individual bank level, we prepare (1) FD, identification dummy withbasically followed by majority of stock share, but with expectation in accordance withthe reform process (such as in Siam Commercial Bank or TMB), and (2) FO, simple
ownership percentage share. For the market level, we prepare (3) percentage of bankidentified as foreign bank (FDRN) in number (FDRA) and total asset in all the bank,and (4) FOWA, weighted average of FOW for all the bank (weighted by total asset).
The market level indices (3) and (4) are identical for same years.

Identification

Individual Bank
(BFPit)Market(MFPit)(1) FD (Dummy)(2) FDRN (%, ratio of FD counting)
FDRA (%, weighted ratio in T.A.)

Ownership Share(3) FOW (%)(4) FOWA(%,weighted ratio of FO)

The complete information of foreign presence variables are shown in Appendix 2.

4.4. Market Concentration and Other Explanatory Variables
Accompanying important issue of the study is relationship between foreign presence
and market competition condition. We introduce HII as the indicator of market
concentration for the market level variables, and bank’s relative size (measured total
asset share) by RBS.
condition.

We will examine indirect impact of foreign presence on market

Other macroeconomic control variables include Inflation, GDP Growth

Rate and Interest Rate, Shareholders Equity Ratio and others.

The definition are

explained in Table 2.

4.5. Data
The data are collected from Bank of Thailand, World Bank, the Stock Exchange ofThailand, and Bank Scope. Table 3 presents statistics of ROA, interest rate spread (IRS),
non-interest income (NII), operational expense (OE), and loan loss reserve (LLR) forthe period of 1999 to 2014. ROA and operation expenses respectively decreased and13increased sharply during 2007 to 2008 due to the global financial crisis, while interest
rate spread appears to constantly climb up until 2007, and has fluctuated after.

5. Empirical Results and Interpretation
5.1. Baseline Estimation
The estimation results are shown in four tables (Table 4 – 7).

For the estimation, allregressions in this study are estimated by a random-effects model. As a fixed-effects
model may remove any effect related to a time-invariant regressor, such as the foreign
dummy variable we used, regressions in Tables 5, 6 and 7 should be estimated in the
random-effects model. To be consistent and comparable with other regressions,regressions in Table 4 are also estimated in the random-effects model4.
Table 4 and Table 5 present the baseline estimation results with five dependent
variables and both the market-level and bank-level effect of foreign bank entry. Table
4 focuses mainly on market-level effect introducing FDRN and FDRA, then compares
the bank-level effect by FOW. Table 5 compares banking performance between foreignand domestic banks by introducing alternative variable, the bank dummy (FD)
associated with bank-level effect. In the Table 5, the estimation results with variable
FDRN are omitted since they are almost same as ones with FDRA.

(1) Revenue 1 – Interest Income or Interest SpreadIRS

We found that foreign bank presence in market-level and foreign ownership in banklevel is positively associated with the interest rate spread (IRS) of commercial banks.
Interest rate spread will grow as the extent of foreign entry increases. It is frequently
pointed (for instance, by Feldstein, 2000) that foreign bank presence is linked to higher
interest income and better loan quality due to them being able to “cherry pick” the best
credits, and leave the sub-prime clients for domestic banks. Thus, domestic banks haveto lend more prudentially, as well as make efforts to fend off the shrinkage of loan
portfolio, due to the competition from foreign banks. The interest income is likely to
4

We also examine regressions in Table 4 using a fixed-effects model, and find that the results are robust todifferent modeling techniques.
14decline, and the interest expenses are likely to increase, owing to the increasing pressure
on absorbing deposits, which leads to a decrease of interest rate spread.
However, the results show a completely different nature from expected. The
result suggest a possibility that foreign bank entry may lead to a less competitivebanking market that results in an increasing interest income. On the other hand,domestic banks still retains advantage on absorbing deposits. These nature is consistent
to the view by Yeyati and Micco (2007) that increased concentration does notdeteriorate market competition, and foreign bank entry may lead to a less competitive
industrial organization by increasing the degree of product differentiation out of theirdifferences in products, value of the brand name, and implicit insurance from a parent
company.
The estimation results show that an increase of bank-level foreign ownershipbrings an increase of interest rate spread. It might be either due to an increasing interest
income or reducing interest expenses, or both. As aforementioned, it’s perceived that
inflow of foreign capital is mainly directed towards large-sized banks, rather than small
and medium banks in the Thai banking sector, which may aggravate market
concentration and enrich large-sized domestic banks greater dominance over absorbing
deposits to result in a reduction of interest expenses.
Another possibility of the results about bank-level effect is that greater foreign
ownership is considered to be linked to a good credit reputation, that likely leads to alower interest cost of deposits collection. Relative bank size (RBS) is also found to bepositively related to interest rate spread, pointing out that those large banks may have arelatively higher interest rate spread, contradict to that of Unite and Sullivan (2003).
The observation is consistent to Chantapong (2005) that foreign banks do have a higher
interest rate spread than domestic banks.

(2) Revenue 2 – Non Interest Income (NII)
As for the business diversification, we find positive relationship between non-interest
income and market-level foreign entry. Table 4 shows that the greater the increase offoreign bank presence in the market (FDRN or FDRA), the greater the non-interest
15

income to total assets ratio. This is consistent with the speculation that higher foreignbank presence generally enables local banks to explore better product innovation, moreadvanced skills and investment banking business technology, and greater experiencesin brokerage and consultation services (Levine, 1996). Local banks may have to seekbusiness opportunities and profit in non-banking areas, to compensate for losses in the
traditional banking business, in view of competition for lending activities with foreignbanks.
On the other hand, bank-level effect of foreign ownership (FOW, and FD) shows
insignificant in Table 4 and Table 5. In Table 4, foreign ownership (FOW) seems to be
insignificantly related to non-interest income. The case of Thailand provides little
evidence for the arguments that greater foreign monitoring may reduce local banks’dependence on non-traditional banking business, as was proved in the Philippine
banking sector, or that greater foreign ownership may bring about technologicaltransformation in non-banking areas.
It is also found that bank size (RBS) is significantly associated with non-interest
income in positive way, which implies that large-sized banks have more advantages intaking part in non-traditional banking business.
New foreign entry with gaining control (FD) do not resulted in a higher noninterest income (Table 5). The hypothesis that foreign banks’ advanced experience andskills in non-banking business brings productivity progress is not supported by theestimation result. This is probably because those foreign banks largely controlled byprominent foreign banks are prone to paying more attention to traditional lending
activities to follow customers from a home country, or owing to a higher profitability
on interest income.

(3) Operating Expense (OE)
Table 4 also presents an negative relationship between foreign bank entry in market
level and operation expenses, consistent to the prediction by Moreno et al. (2005).
Different from general conjecture that foreign bank entry may lead to a less competitivemarket, domestic banks are still supposed to adopt best practices that contribute to16

better operation efficiency on the grounds of foreign bank’s expertise in the same area.
We found in Table 4 the positive relationship between foreign ownership in banklevel and operational cost. It verifies an argument that increasing foreign ownership ina bank seems to result in increasing personnel expenses and equipment costs, tomodernize banking operations to get ready for challenge and chance, also raising othernon-lending operation costs due to expanded non-lending activities such as innovationsin internet banking and financial products. It also provides evidence that greater foreign
ownership may incur more cost on greater inside monitoring.
Operation expenses are found to be positively related to the non-interest earning
assets ratio (NIA). It’s surmised that an increase in non-interest earning assets is linked
to increased non-interest expenses over expanded non-lending activities.
On the other hand, the increase of operational cost is not find in the case of the
new entry gaining control by foreign banks (FD) in Table 5. Since Table 5 also showsthat FD dummy does not give any impact on non-interest income, it suggests thatmanagement reform forward new business with higher personnel cost or equipment
cost, observed in partial ownership participation case, was less active in full acquisition
type entry.

(4) Loan Loss
We find that the increase of foreign bank entry will lead to a reduction of bank risk at alow significance, and will only be significant when estimated by the measure of foreignbank assets ratio (FDRA%). Foreign ownership in bank-level (FOW) is also found tobe negatively related to bank risk, which supports the argument that greater foreign
ownership will spur better monitoring, and provisioning to impel more prudential andconservative lending behavior, to reduce bank risk in return. Quality of loans is also
found to be improved, along with an increase of real interest rate in the Thai banking
sector.
(5) Profit (ROA)
We find that ROA show significant positive relationship to foreign bank presence in17market level, which is robust in two models of Table 4 and 5. This is quite opposite of
the findings by Claessens et al. (2001) that an increased foreign presence of foreignbanks is associated with a reduction in profitability. Combined with the results onrevenue and cost, we can interpret that as a mixed result of increasing interest rate
spread and non-interest income, and decreasing operation costs due5.
On the other hand, change of foreign ownership (FOW) seem to have nosignificant effect on ROA, which is the same results as Unite and Sullivan (2003) in
Philippine’s case. The impact of bank-level foreign entry was significantly positive tointerest rate spread, and negative to operational cost. The result on ROA implies that
two impacts cancel out each other. The impact of ROA in the case of FD also shows
insignificant.
To sum, our findings indicate that the market-level foreign presence induce toincrease of interest margin, to widen the income source in non-lending service, and to
decrease the operational cost, resulting to realize profit rate surge. Meanwhile, banklevel foreign presence induce increase of interest margin, but at the same time, incurs
the rise of operational cost. As a result the impact to profit rate is neutral.

5.2. Foreign Presence and Market Condition
Now we focus on the relationship between income/cost structure and market
competition condition. Table 6 and Table 7 observe the effect of foreign presence bothin market- and bank-level, and market concentration situation on income side (Interest
Rate Spread, Table 6) and cost side (Operational Expense, Table 7). We prepare
Herfindahl–Hirschman Index (HHI) to represent market level concentration, andRelative Bank Size (RBS) to represent market controlling power of each bank.
The results of Table 6 shows a significant negative relationship between the HHI
Index and interest rate spread. It means that in the years when market concentration ishigh, banks realize lower interest rate spread, and it is contracted to our usual5

As a matter of fact, the net margin of the banking sector has ranked in the top three among all industries inThailand for a lengthy period, which also raises doubts about the market competition condition of the banking
sector.
18

knowledges. Relative Bank Size (RBS) show positive relationship in a few cases
meaning that larger bank enjoy higher spread.
By introducing interact term with Foreign Dummy (FD), we distinguish theseeffects to foreign banks from others. The coefficients of interact term of HHI*FD show
insignificant, and in the estimation (3) in Table 6 the coefficient of FD becomesinsignificant. Different from the case of domestic banks, the market concentration isneutral for the interest spread of foreign banks.
In some estimation cases, RBS shows positive relationship with interest rate
spread meaning that the larger banks enjoy the larger interest income. But in theestimation (5) in Table 6, the coefficient of intersect term of RBS*FD shows strongly
negative, which means that for foreign and the larger banks face lower interest income.
The results of Table 7 shows negative correlation between Herfindahl–
Hirschman Index and operational cost. There seems no correlation between bank size
(RBS) and operational cost.

We find that the interaction term between the HHI andforeign dummy has a positive relationship with operational expenses, this means thatproblem of X- inefficiency is remarkable only in the foreign banks.

6. Conclusions
In this study, through distinguishing mechanisms of action from market-level foreignbank entry and bank-level foreign ownership, we examine the effects of foreign entry
on cost and profit structure of commercial banks, in case of Thailand for relatively
longer period of 1999 - 2014.
Overall, foreign bank presence in market-level improves profitability of thedomestic banking sector in the case of Thailand during 1999 - 2014. Foreign bank entry
and accompanying strengthened competition condition brings banking sector acircumstances to find better product innovation, more advanced skills, and technology
for non-banking business. It also helps to improve banks' operation efficiency.
On the other hand, the foreign bank entry in bank-level in forms of acquisition or
partial shareholding, does not show clear improvement of the profitability.

Foreignbanks only enjoy larger interest spread, but no evidence for improving cost efficiency
19

or diversifying their business was found.
The relationship between foreign presence and market competition is unclear.
Also the strengthening market concentration are consequence of concentrated foreign
capital participation to larger banks, which may lead it to a positive relationship withinterest rate spread of such powerful banks. These findings cast the questions onthefinancial sector policies implemented since 2000s in Thailand. This appears to be asignificant topic for further research.

Acknowledgements
A previous version was presented as part of the 15th International Convention of theEast Asian Economic Association. The authors would like to thank Prof. Dr. Sukanda
Lewis, the Institution of Asian Study, Faculty of Economics, Chulalongkorn
University, for her valuable comments. The authors are also grateful to Ms. Saithip
Konggiatnarong, Senior Researcher, Kasikorn Research Center.

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22Figure 1. Trend of Foreign Entry and Market Concentration

50

%

0.18

45

0.17

40

0.16

35
30

HHI (right,
1999-)
FDRN

0.15
FDRA

25
0.14

20

FOWA

15

0.13

10

0.12

5

2014

2013

2012

2011

2010

2009

2008

2007

2006

2005

2004

2003

2002

2001

2000

1999

1998

0.11
1997

0

Source: Bank of Thailand, Stock Exchange of Thailand.
Note: FDRN is the ratio of foreign bank numbers to total commercial banks numbers. FDRA is the ratio of foreignbank assets to total commercial banks assets. FOWA is the weighted annual average of every commercial bank’s
foreign ownership, weighted by bank assets. HHI is the Herfindahl–Hirschman Index calculated by the authors,marked by the secondary axis.

23

Table 1. Market Share of Commercial Banks and Foreign Ownership
1997(1) Banks Incorprated in Thailand Domestic Bank)

1 Bangkok Bank
2 Thai Farmers Bank
3 Krung Thai Bank
4 The Siam Commercial Bank
5 Bank of Ayudhya
6 The Thai Military Bank
7 First Bangkok City Bank
8 Siam City Bank
9 Bangkok Metropolitan Bank
10 Bank of Asia
11 The Bangkok Bank of Commerce
12 The Thai Danu Bank
13 Nakornthon Bank
14 The Union Bank of Bangkok
15 The Laem Thong Banksum of top 5
sum of top 10
Corprated in Thailand, Total (1)Forigen Bank Branch, Total (2)(1)+(2) total

Total Assets MB/(1) /(1)+(2)1,408,619 23.4% 18.9%
795,385 13.2% 10.7%
792,664 13.2% 10.7%
717,240 11.9%
9.6%
493,890
8.2%
6.6%
389,476
6.5%
5.2%
316,145
5.3%
4.2%
272,124
4.5%
3.7%
190,560
3.2%
2.6%
156,6442.6%
2.1%
145,9712.4%
2.0%
130,266
2.2%
1.8%
73,7991.2%
1.0%
73,2841.2%
1.0%
51,9420.9%
0.7%
4,207,798
5,532,747
6,008,009
1,433,654
7,441,663

70.0%
92.1%

56.5%
74.3%
80.7%
19.3%

No. of Officies
114
117
88
106
106
73
30
43
55
36
27
36
36
39
20

12.3%
12.6%
9.5%
11.4%
11.4%
7.9%
3.2%
4.6%
5.9%
3.9%
2.9%
3.9%
3.9%
4.2%
2.2%

531
768
926
20
946

57.3%
82.9%

2013
(1) Banks Incorprated in Thailand Domestic Bank
Total Assets MB/(1) /(1)+(2)1 Bangkok Bank
2,502,750 17.7% 15.5%
2 Krung Thai Bank
2,502,231 17.7% 15.5%
3 The Siam Commercial Bank
2,383,608 16.8% 14.7%
4 KasikornBank
2,092,060 14.8% 12.9%
5 Bank of Ayudhya
1,073,419
7.6%
6.6%
6 Thanachart Bank
990,724
7.0%
6.1%
7 TMB Bank
765,345
5.4%
4.7%
8 United Overseas Bank
408,027
2.9%
2.5%
9 TISCO Bank
342,030
2.4%
2.1%
10 CIMB Thai Bank
278,3622.0%
1.7%
11 Standerd Chartered Bank (Thai)
254,833
1.8%
1.6%
12 Kiatanakin Bank
234,295
1.7%
1.4%
13 Land and Houses Bank
148,7191.0%
0.9%
14 Industrial and Commercial Bank of China
148,128
1.0%
0.9%
15 Thai Credit Retail Bank
25,9120.2%
0.2%
16 Mega International Commercial Bank
17,5490.1%
0.1%
Sum of top 5
10,554,068 74.5% 65.2%
Sum of top 10
13,338,556 94.1% 82.4%
Corprated in Thailand, Total (1)14,167,992
87.6%
Forigen-owned Bank Total (3)2,180,318 15.4% 13.5%
Forigen Bank Branch, Total (2)2,014,286 100.0% 12.4%(1)+(2) total
16,182,278
Forigen bank ground total (2)+(3)4,194,604
25.9%
Note: Bank No.5, 8.10.11.14 and 16 are subsidiary of foreign capital

Source: Bank of Thailand, Commercial Banks in Thailand (1997-2014)24

No. of Officies
284
287
356
291
190
245
172
85
21
79
21
26
44
9
11
2
1,408
2,010
2,121
1,839
14
1,853

13.4%
13.5%
16.8%
13.7%
9.0%
11.6%
8.1%
4.0%
1.0%
3.7%
1.0%
1.2%
2.1%
0.4%
0.5%
0.1%
66.4%
94.8%
86.7%

Table 2. Definition of Dependent Variables and Independent Variables
Variables

Definition

Dependent variables
Profitability
ROA

ratio of annual net income to total assets of bank i at time t

IRS, Interest Rate Spreadthe difference in lending rate on total loans and borrowing rate on total
deposits of bank i at time t

NII, Non-interest Income/ta

ratio of non-interest income to total assets of bank i at time t

Operating Efficiency
OE, Operational Expense/ta

ratio of operating expenses to total assets of bank i at time t

Risk control
LLR, Loan Loss Reserve/ta

ratio of loan loss reserves to total assets of bank i at time t

Independent Variables. Foreign Presence Proxies
Market-level Foreign Penetration (MFP)
FDRN, Ratio of Foreign Bank Numbers

ratio of foreign bank numbers to total bank numbers at time t

FDRA, Ratio of Foreign Bank Assets

ratio of foreign bank assets to total bank assets at time t

FOWA, Foreign Ownership Annual
Averageweighted annual average ratio of every commercial bank’s foreign ownershipweighted by bank assets at time t

Bank-level Foreign Penetration (BFP)
FOW, Ratio of Foreign Ownership

ratio of foreign ownership of bank i at time t

FD, Dummy of Foreign Banka dummy variable equals to 1 if a bank’s foreign ownership is more than 50%
and it’s controlled by institutions with headquarters abroad.

. Bank Specific Factors
NIA, Non-interest Earning Assets/ta

ratio of non-interest earning assets (cash, non-interest earning deposits at otherbanks, and other non-interest earning assets) to total assets of bank i at time t

EQU, Equity/ta

ratio of shareholders equity to total assets of bank i at time t

OE, Operational Expense/ta

ratio of operating expenses to total assets of bank i at time t

RBS, Relative Bank Sizeratio of one bank assets to all commercial banks assets of bank i at time t. Market Indicators
HHI, Herfindahl–Hirschman Indexa measure of internal market structure of market concentration, a higher
index refers to a highly monopolistic market at time tGDP, Real GDP Growth Rate

real GDP growth rate on an annual basis and adjusted for inflation at time t

RIR, Real Interest Ratethe nominal interest rate after allowing for inflation at time t

INF, Inflation Ratethe annual percentage change in the consumer price index at time t

25

Table 3. Descriptive Statistics on Dependent Variables of Banking Performance of 1999-2014
1999

2000

2001

2002

2003

2004

2005

2006

2007

ROA (return on assets)
Average-5.7188-1.3372

0.95580.10590.38031.04901.24940.4874-0.4419

St. Dev

2.31133.86034.24681.01851.61180.6873

1.3411

1.39573.1731Minimum-9.2937-7.4819-2.3954-1.8845-3.7123

0.1411-2.0343-2.6858-8.7846

Maximum-2.8697

7.725512.78860.87941.80612.45063.54801.8321

3.2426IRS(interest rate spread)

Average

0.58132.06522.55622.16052.31732.82812.70953.03453.2278

St. Dev0.95502.78283.00881.18001.21651.45031.2305

1.11651.1188Minimum-1.6407-0.78100.0246

0.39620.57601.34520.24790.69211.7051

Maximum

1.62249.449610.80445.10165.5452

6.77845.18594.74066.3845

NIA(noninterest-income/ta)

Average

0.57840.64800.8723

1.0433

1.14730.99700.76180.75950.5635

St. Dev0.65800.42840.68130.49330.29650.52770.89400.4086

0.9768Minimum-0.05180.1031-0.0155

0.40940.65820.2317-1.5574-0.0670-2.8910

Maximum

2.1622

1.31392.61962.33371.71532.31252.7906

1.41871.3680OE(overhead/ta)

Average

2.37142.30332.30311.9302

1.99871.9526

1.69762.33832.7540St. Dev

0.71830.73990.72910.8806

0.76170.98240.56670.56742.0517

Minimum

1.77301.7863

1.69360.92401.36670.92670.40491.55301.3955

Maximum

4.19804.18654.00054.19404.10324.60502.52123.729310.1687

LLR(loan loss reserve/ta)

Average13.27428.19053.81386.62816.75646.03664.56643.60972.9573

St. Dev

12.0323

11.58372.0201

3.57842.89232.91193.40332.32371.7753

Minimum

2.74941.07391.7344

1.43822.3703

1.66160.88070.81180.8555

Maximum

42.067837.3828

7.3101

12.11939.971110.3549

14.6831

10.3051

8.169626

Table 3. Descriptive Statistics on Dependent Variables of Banking Performance of 1999-2014(continued)
16-year
2008
ROA

2009

2010

2011

2012

2013

2014

average(return on assets)

Average0.63590.6986

0.98920.9302

0.9442

1.14791.34140.6091

St. Dev

1.15140.58040.48900.57020.68680.61270.5203

1.4630

Minimum-2.4413-0.9171

0.31120.0790-0.56160.05980.3445-2.1309

Maximum

2.56991.53242.38422.38422.38422.38421.99013.3268IRS(interest rate spread)

Average

3.15893.15012.99552.78272.65482.78103.05862.7654

St. Dev

0.97550.57430.82880.85990.88050.97640.75451.2636

Minimum

1.64202.39491.91431.63091.52011.45082.19061.1300Maximum

5.94224.24095.38185.38185.38185.38184.50756.0139NIA(noninterest-income/ta)

Average

0.63860.87370.87900.9807

0.9763

1.0636

1.11440.8879

St. Dev

0.53200.38770.4247

0.46290.48630.52630.48830.5343

Minimum-0.66100.26840.13200.21390.18560.28400.6334-0.1382

Maximum

1.4102

1.54941.69081.69081.69202.12652.10081.8755OE(overhead/ta)

Average

2.15282.23642.05591.94211.93281.8297

1.99942.0951

St. Dev

0.6617

0.63800.56380.56380.61230.63800.44460.7601Minimum

1.30761.2957

1.16691.07300.92620.74401.48901.2035

Maximum

4.20813.70623.20523.20523.20523.20522.74674.0660

LLR(loan loss reserve/ta)

Average2.49552.57262.24592.23472.18562.43852.69483.9618

St. Dev

1.8251

1.47281.1542

1.03280.91010.90010.72932.5675

Minimum

0.3466

0.52850.74310.80340.76130.96391.80351.1184

Maximum

8.37596.62814.30084.30084.30084.30083.70829.747427

Table4. The regression results of commercial banks for the period of 1999-2014
Dependent









Variables

ROA

IRS

NII

OE

LLR

FDRN

0.188***

0.0746**

0.0338*-0.0448**-0.301*(3.61)(2.89)(2.27)(-2.93)(-2.23)

FDRA

FOW

NIA

EQU

OE

RBS

GDP

RIR

INF

Intercept

Obs

0.0849***0.006130.0220***-0.0253***-0.0656(3.80)(0.54)(3.51)(-4.03)(-1.11)-0.00279-0.00204

0.00848**0.00981***0.001590.00155

0.00580**

0.00535**-0.0258*-0.0292*(-0.57)(-0.42)(3.24)(3.73)(0.96)(0.97)(3.13)(2.99)(-2.13)(-2.41)-0.0231-0.0275

0.0659***0.0628***0.0122*0.0117*0.0170**0.0168**0.08490.0945(-1.17)(-1.41)(6.65)(6.20)(2.11)(2.08)(2.83)(2.87)(1.67)(1.85)

0.105**

0.121***

0.0621***

0.0663***0.0383***0.0429***-0.0145-0.01930.07300.0582(3.02)(3.49)(3.42)(3.57)(3.43)(3.90)(-1.16)(-1.59)(0.84)(0.66)

0.08830.163

1.009***

0.963***

0.00292

0.0380

0.832

0.920

(0.37)(0.68)(8.44)(7.70)(0.04)(0.54)(1.37)(1.47)

0.0476*0.0492*0.0341*0.0357**0.0387***0.0396***-0.0175-0.0183

0.02130.0195(2.01)(2.08)(2.49)(2.58)(3.98)(4.08)(-1.29)(-1.35)(0.38)(0.34)-0.0150-0.0898-0.0284-0.0582*

0.01860.00543-0.0197-0.00230

0.199

0.321*(-0.27)(-1.73)(-1.02)(-2.20)(1.17)(0.38)(-1.20)(-0.15)(1.36)(2.35)-0.739***-0.745***-0.245***-0.215***-0.0549*-0.0632**

0.0520*0.0571*0.840***

0.769***(-9.13)(-9.22)(-6.08)(-5.20)(-2.36)(-2.78)(2.16)(2.44)(3.99)(3.61)-0.447***-0.367**-0.0953-0.0687-0.0833*-0.0676*

0.02160.00146

0.269

0.153

(-3.89)(-3.25)(-1.68)(-1.19)(-2.56)(-2.15)(0.64)(0.04)(0.90)(0.51)

2.026

0.932

-0.365-0.02220.150-0.2672.065***

2.452***-0.470-0.832(1.94)(0.80)(-0.69)(-0.04)(0.47)(-0.76)(6.43)(7.18)(-0.18)(-0.27)

188

188

188

188

188

188

188

188

188

188

Note: The regressions are estimated by a random-effects model with a sample that covered more than 95% of allcommercial banks in Thailand. All variables are defined in Table1. * denotes 10% level of significance, ** denotes
5% level of significance, and *** denotes 1% level of significance.

28

Table 5. Comparative Analysis of Foreign Banks and Domestic Banks


ROA

IRS

NII

OE

LLR

FDRA

0.179***

0.0687**0.0376**-0.0388-0.317**(3.73)(2.71)(2.64)(-1.81)(-2.64)0.167

0.867**

0.128

0.00538-1.002(0.41)(3.09)(1.12)(0.03)(-1.23)-0.01820.0708***0.0114*0.0224**0.119*(-0.94)(6.82)(2.02)(2.62)(2.54)

0.0283-0.0134

0.0173*0.002440.00516(1.11)(-0.79)(2.39)(0.21)(0.10)-0.554***0.385***-0.00314-0.0875(-3.58)(4.34)(-0.07)(-0.24)0.0465-0.000570

0.0415***-0.0232

0.0305(1.55)(-0.02)(5.04)(-1.60)(0.56)-0.0257-0.04370.0157-0.01320.190(-0.50)(-1.65)(1.03)(-0.57)(1.46)-0.714***-0.261***-0.0588**

0.05800.919***(-9.29)(-6.55)(-2.59)(1.69)(4.74)-0.439***-0.109*-0.0807*0.02570.321(-4.11)(-1.99)(-2.56)(0.54)(1.19)

3.758***

2.199***

0.338

2.101***

0.312(4.21)(4.17)(1.30)(5.54)(0.15)

210

210

210

210

210

FD

NIA

EQU

OE

RBS

GDP

RIR

INF

Intercept

Obs

Note: The regressions are estimated by a random-effects model with a sample that covered more than 95% of allcommercial banks in Thailand. All variables are defined in Table 1. * denotes 10% level of significance, **denotes 5% level of significance, and *** denotes 1% level of significance.

29

Table 6. The Regression Results of Interest Rate Spread
Dependent
Variables
FDRA

FOW

Benchmark

(1)

(2)

(3)

(4)

0.0746**

0.0687**0.0875***

0.0935***0.0645*0.0784**(2.89)(2.71)(3.35)(3.42)(2.50)(3.04)

0.867**

0.734**-2.0311.330***(3.09)(3.20)(-0.57)(3.71)

0.00848**0.00827**(3.24)(3.17)

FD

HHI-33.85*-54.24**(-2.17)(-3.21)

HHI*FD

22.83(0.83)

RBS

0.0341*-0.000570

0.0324*0.0288-0.001210.0143(2.49)(-0.02)(2.35)(1.69)(-0.04)(0.62)RBS*FD-0.225*(-2.15)

NIA

EQU

OE

GDP

RIR

INF

Intercept

Obs

0.0659***0.0708***0.0680***0.0702***0.0698***(6.65)(6.82)(6.94)(6.52)(6.67)(6.70)

0.0621***(3.42)-0.0134

0.0511**-0.00622-0.0118-0.0130(-0.79)(2.76)(-0.43)(-0.68)(-0.81)1.009***

0.385***

0.954***

0.376***

0.369***

0.386***(8.44)(4.34)(7.96)(4.29)(4.08)(4.41)-0.0284-0.0437

0.00350

0.00639-0.0487-0.0474(-1.02)(-1.65)(0.11)(0.20)(-1.80)(-1.77)-0.245***-0.261***-0.241***-0.250***-0.262***(-6.08)(-6.55)(-6.08)(-5.85)(-6.57)(-6.55)-0.0953-0.109*-0.148*-0.185**-0.103-0.107(-1.68)(-1.99)(-2.43)(-2.90)(-1.86)(-1.93)-0.365

2.199***

4.065

8.632***

2.263***

2.036***(-0.69)(4.17)(1.94)(3.94)(4.24)(3.99)

188

210

188

210

210

210

Note: The regressions are estimated by a random-effects model with a sample that covered more than 95% of allcommercial banks in Thailand. All variables are defined in Table1. * denotes 10% level of significance, ** denotes
5% level of significance, and *** denotes 1% level of significance.

30

Table 7. The Regression Results of Operating Expenses
Dependent
Variables
FDRA

FOW

Benchmark

(1)

(2)

(3)

(4)

-0.0448**-0.0388-0.0334*-0.0250-0.0471*-0.0392(-2.93)(-1.81)(-2.13)(-1.17)(-2.19)(-1.83)0.005380.0602-7.372*

0.0564(0.03)(0.31)(-2.49)(0.20)

0.00580**0.00499**(3.13)(2.68)

FD

HHI-23.44*-37.80**(-2.54)(-2.93)

HHI*FD

57.94*(2.50)RBS*FD-0.0189(-0.22)

NIA

EQU

RBS

GDP

RIR

INF

Intercept

Obs

0.0170**0.0224**0.0172**0.0235**0.0191*

0.0219**(2.83)(2.62)(2.91)(2.81)(2.23)(2.58)-0.01450.00244-0.0212-0.00201

0.007100.00496(-1.16)(0.21)(-1.69)(-0.16)(0.60)(0.40)-0.0175-0.0232-0.0185-0.0201-0.0206-0.0226(-1.29)(-1.60)(-1.36)(-1.32)(-1.43)(-1.45)-0.0197-0.0132

0.00288

0.0226-0.0255-0.0134(-1.20)(-0.57)(0.16)(0.89)(-1.10)(-0.59)0.0520*0.05800.0512*0.0646

0.0551

0.0585(2.16)(1.69)(2.16)(1.95)(1.63)(1.73)

0.02160.0257-0.0155-0.0279

0.04080.0263(0.64)(0.54)(-0.43)(-0.56)(0.86)(0.56)

2.065***

2.101***

5.079***

6.774***

2.149***

2.071***(6.43)(5.54)(4.14)(4.11)(5.74)(5.43)

188

210

188

210

210

210

Note: The regressions are estimated by a random-effects model with a sample that covered more than 95% of allcommercial banks in Thailand. All variables are defined in Table 1. * denotes 10% level of significance, **denotes 5% level of significance, and *** denotes 1% level of significance.

31Appendix 1. Reorganization of Thai Commercial Banks from 1997 to 2015

Source: Compiled by the author from Commercial Banks in Thailand (1997-2014); Bank of Thailand(statistical data 1997-2015); annual report of commercial banks incorporated in Thailand.
32

Appendix 2 Foreign Share and Attribution of Foreign Subsidiaries in Domestic Commercial Banks (since 1997 to 2014)
Bank Name

T.A.
1998
1,266.9
23.6%
1,067.0
19.9%
706.1
13.2%
704.3
13.1%
483.6
9.0%

T.A.
2013
2,502.8
17.7%
2,502.2
17.7%
2,383.6
16.8%
2,092.1
14.8%
1,073.4
7.6%
990.7
7.0%

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

17.9
11.4
0
0
5.9
4.7
2 Krung Thai Bank
0
0
20.0
26.2
3 Siam Commercial Bank
0
0
16.4
36.0
4 Kasikorn Bank
0
0
10.6
8.2
5 Bank of Ayudhya
00
6 Thanachart Bank
178
1.3
0.0
18 Bangkok Metropolitan Bank
0
1
0
279
14.8
0.0
17 Siam City Bank
0
0
0
355.7
765.4
15.2
4.6
7 TMB Bank
6.6%
5.4%
0
0
133
8.4
58.1
19 DBS Thai Danu Bank
0
0
1
408.0
3.6
76.5
8 United Overseas Bank (Thai)
2.9%
0
1
48
15.6
100.0
20 UOB Radanasin Bank
0
0
1
342.0
9 Tisco Bank*2
2.4%
68.2
278.4
26.9
0.0
10 CIMB
1.3%
2.0%
0
0
74.1
254.8
9.6
15.3
11 Standard Chartered (Thai)
1.4%
1.8%
0
0
234.3
12 Kiatnakin Bank
1.7%
148.7
13 Land and Houses Bank
1.0%
Industrial and Commercial Bank Of China
148.1
14(Thai)
1.0%
25.9
15 Thai Credit Retail Bank
0.2%
17.6
16 Mega International Commercial Bank
0.1%
Big 4 Simple Average
15.1
19.6
Big 4 Asset-wieghted Average*3
14.9
18.8
All Bank Simple Average
12.8
26.2
Note. Upper cell shows the foreign share. Lower cells show identification of foreign subsidiary

32.8
0
0.0
0
24.3
0
15.7
0
6.0
0
0.0
0
0.0
0
3.6
0
57.0
1
76.4
1
75.0
1
0.0
0
75.0
1
18.2
18.2
28.1

32.1
0
0.7
0
25.7
0
34.9
0
13.2
0
0.0
0
0.0
0
4.6
0
56.8
1
77.6
1
75.0
1
0.0
0
75.0
1
23.4
22.8
30.4

31.8
0
1.2
0
27.5
0
33.6
0
11.1
0
0.0
0
0.0
0
0.9
0
58.1
1
78.8
1
75.0
1
0.0
0
75.0
1
23.5
23.0
30.2

48.7
0
2.1
0
56.3
0
49.0
0
17.9
0
0.1
0
0.0
0
4.3
0
59.7
1
0.9
1
78.8
1
3.9
0
75.0
1
39.0
38.4
30.5

48.3
0
17.1
0
60.8
0
49.0
0
23.9
0
0.0
0
4.8
0
6.6
0
60.9
1
1.0
1
78.8
1
0.7
0
75.0
1
43.8
43.4
32.8

48.3
0
12.4
0
52.7
0
49.0
0
31.3
0
0.1
0
24.0
0
26.8
0
97.0
1
83.8
1
5.8
0
75.0
1
40.6
40.1
42.2

48.3
0
19.9
0
55.5
0
49.0
0
32.0
0
0.0
0
25.0
0
39.6
0
98.6
1
44.5
0
6.0
0
99.8
1
42.9
0
N.A.
N.A.
38.4
0
N.A.
1
43.2
42.8
42.8

48.1
0
24.3
0
56.4
0
49.0
0
31.8
0
0.0
0
25.0
0
42.4
0
99.6
1
48.6
0
0.5
0
99.8
1
44.0
0
N.A.
N.A.
30.0
0
N.A.
1
44.5
44.1
42.8

46.9
0
20.8
0
56.1
0
49.0
0
45.9
0
25.0
0
24.9
0
52.8
0
99.6
1
48.9
0
37.1
0
100.0
1
38.8
0
N.A.
N.A.
29.7
0
N.A.
0
N.A.
1
43.2
42.8
48.2

44.6
0
14.9
0
41.3
0
49.0
0
47.2
0
25.0
0
21.8
0
47.5
0
99.7
1
40.1
0
88.2
1
100.0
1
38.4
0
N.A.
N.A.
26.0
0
N.A.
0
N.A.
1
37.4
36.9
48.8

44.0
0
20.6
0
35.9
0
49.0
0
47.2
0
49.0
0
22.5
0
43.7
0
99.7
1
47.3
0
97.2
1
99.9
1
32.8
0
N.A.
N.A.
18.1
0
N.A.
0
N.A.
1
37.4
36.9
50.5

43.6
0
21.9
0
34.8
0
49.0
0
47.2
0
49.0
0
0.0
0
36.1
0
99.7
1
48.2
0
97.2
1
100.0
1
43.2
0
N.A.
N.A.
97.4
1
N.A.
0
N.A.
1
37.3
36.9
54.8

43.0
0
20.9
0
36.0
0
49.0
0
47.2
0
49.0
0
34.6
0
99.7
1
47.8
0
97.2
1
100.0
1
33.6
0
0.2
0
97.7
1
N.A.
0
N.A.
1
37.2
36.7
58.1

42.9
0
23.8
0
38.3
0
49.0
0
47.2
0
49.0
0
35.1
0
99.7
1
49.0
0
96.8
1
100.0
1
38.5
0
0.3
0
97.7
1
N.A.
0
N.A.
1
38.5
38.1
59.0

42.5
0
20.4
0
37.0
0
49.0
0
72.5
1
49.0
0
35.6
0
99.7
1
42.5
0
96.8
1
100.0
1
33.6
0
0.8
0
97.7
1
N.A.
0
N.A.
1
37.2
36.7
59.8

35.0
0
18.1
0
37.3
0
49.0
0
72.1
1
49.0
0
no financial data
39.0
0
no financial data
99.7
1
no financial data
48.1
*4
0
96.8
1
100.0
1
32.7
0
0.9
0
97.7
1
N.A.
0
N.A.
no financial data
1
34.8
34.2
59.6

1 Bangkok Bank

1997

33

