Amid the wreckage of the 1997 Asian financial crisis, also known as the "Tom Yum Kung" crisis, the Thai financial sector worked to develop a strong and resilient infrastructure.
Thailand is now in the process of building towards becoming a global financial hub focused on supporting five industries: banking, securities, derivatives, digital assets and insurance.
Is Thailand well-positioned to become a global financial hub?
Caretaker Finance Minister Pichai Chunhavajira has discussed the necessity of promoting Thailand as a financial hub as the global financial landscape undergoes rapid changes. Countries around the world are developing financial regulations and technology in a drive to remain competitive internationally.
Traditional financial hubs such as the US, UK and Japan continue to develop, while more recent financial centres such as Singapore and the United Arab Emirates (UAE) are improving their ecosystems to support financial businesses, improve financial services, and foster financial innovation.
Mr Pichai said now is the time for Thailand to leverage its financial infrastructure and services, which continue to be developed, to attract business groups, investment, financial transactions and knowledge.
The transformation aims to make Thailand's financial sector more agile, conducive to innovation, and comparable to other financial hubs.
This initiative is part of the government's "Ignite Thailand" development agenda, striving to elevate the nation through strategic investments and bond market reforms.
The goal is to position Thailand as a financial hub that serves future financial transaction requirements, boasting infrastructure and innovation to influence global finance.
What would Thailand gain from becoming a financial hub?
Becoming a financial hub would drive economic and technological growth, with economic expansion enabling broader wealth distribution among Thais, said Pornchai Thiraveja, director-general of the Fiscal Policy Office under the Finance Ministry
As a financial centre, Thailand could also attract more foreign investment, which over time should increase the country's GDP.
A hub status should help create high-quality jobs, not only in the financial sector, but also related industries such as technology, real estate and services. This should stimulate Thailand's economy and improve the quality of life.
The technology developed as a financial hub would facilitate the transfer of expertise and knowledge from abroad, covering not only financial services and fintech, but also artificial intelligence, data analytics and regulatory technologies related to financial services.
The hub transformation would influence global financial policy and practices, according to authorities. By utilising innovative leadership to improve, Thailand would become integrated as a significant component of the global financial sector.
What can Thailand learn from the experiences of other countries?
Financial hub models vary from country to country. For example, Japan introduced its vision of "Global Financial City: Tokyo" in 2017 with the aim of establishing the International Financial Center in the city to attract investment and foreign talent. To support the establishment of financial and fintech companies, the government created programmes providing funding for foreign companies wishing to set up in the financial centre.
Business Development Center Tokyo was created as a one-stop service for consultation on company formation in Japan, including matters related to settlement and residency.
The government also introduced the Financial Place Japan policy, which included relaxing various regulations to support the operations of the International Financial Center, such as easing registration requirements for fund managers and relaxing the qualifications required for highly skilled workers seeking work permits within the centre.
Regarding tax incentives, the Japanese government offers tax benefits for the International Financial Center, such as exemptions from inheritance tax for assets originating overseas. Executives at asset management companies can also use performance-based compensation to qualify for tax deductions.
Meanwhile, Singapore's strategy to become a financial centre was achieved through integrated development covering regulations, tax benefits and infrastructure development.
The Singapore Economic Development Board oversees policies to attract investment and regulate related industries.
The Monetary Authority of Singapore relaxed licensing rules for businesses providing financial services, including fund management companies, brokerage firms and futures trading businesses, while imposing a corporate tax rate of 17%, personal income tax ranging from 2% to 22%, and value-added tax of 8%.
The UAE established the Dubai International Financial Centre (DIFC) in 2004, with the Dubai Financial Services Authority as the main regulatory body. DIFC offers tax benefits as a tax-free zone, meaning both corporate and personal income taxes are exempted for businesses operating within the centre.
Regulations for foreign businesses were relaxed, allowing companies with 100% foreign ownership to operate within the DIFC.
In addition, the DIFC promotes staff development through educational programmes, training events and seminars such as the FinTech Hive and FinTech Festival to attract tech startups from around the world, enhancing the knowledge and expertise of personnel within the centre.
What form would Thailand's financial hub take?
Thailand's financial hub would aim to facilitate business operations. The Finance Ministry would introduce laws to ease cross-border transactions for businesses establishing themselves in Thailand.
A One-Stop Authority (OSA) would be established within the hub to improve efficiency and technological development.
Promoting ease of doing business is a key factor in building confidence among businesses and service users, making such a hub investor-friendly.
The OSA would serve as the focal point for businesses to apply for licences in various financial service sectors, facilitating interactions with government and regulatory bodies.
Would the OSA's role overlap with the Bank of Thailand or other investment promotion agencies?
The hub is expected to focus on supporting five financial industries: banking, securities, derivatives, digital assets and insurance.
The structure of the hub requires ongoing discussions with relevant regulatory bodies, including the central bank, to ensure an appropriate regulatory framework.
This framework needs to be flexible and agile enough to attract global financial transactions and support technological advancements, while maintaining financial and economic stability.
As a consequence, further discussions are needed between the Finance Ministry, regulatory bodies, and other relevant agencies as the project progresses.
What are Thailand's strengths as it bids for hub status?
Thailand stands out for its regulatory framework and comprehensive infrastructure development.
The government and regulatory agencies have prioritised creating regulations that are both suitable and flexible enough to foster technological advancements.
Together they have continued to develop the country's financial infrastructure, such as electronic payment systems, which are crucial for facilitating convenient and secure financial transactions for businesses and individuals, including international electronic transactions that support operations in a financial hub.
Thailand was one of the first countries to enact specific legislation to regulate digital asset businesses. It also developed capital market products that support sustainability, such as a carbon credit market.
The country's financial sector developed across all financial industries and is deemed progressive by outside agencies.
In addition, Thailand's hospitality services, including accommodation, tourism destinations and convenient transport, are strengths that could make the country a top choice among investors.
Will Ignite Finance help Thai SMEs?
Montri Mahaplerkpong, chairman of the International Chamber of Commerce, said the government needs to ensure the Ignite Thailand finance arm can enable small and medium-sized enterprises (SMEs) to gain easier access to financial sources.
He said the scheme, which aims to increase capital inflows into Thailand, raises the question of whether more overseas money would encourage local commercial banks to lower their net interest rate spread, leading to a reduced financial burden for SMEs.
The interest rate spread -- the difference between the interest rates for loans and deposits -- is crucial to banks' profitability.
A high spread affects SMEs, which are good debtors with a high potential to repay their debts, as banks tend to lend at higher rates than they offer for deposits, said Mr Montri.
Thailand currently has a spread of seven percentage points, higher than regional neighbours such as Singapore and Malaysia, where the spread is around four percentage points.
"A high spread is not good for borrowers," he said.
"The government may need to set up a new SME bank to deal with the spread issue. Its work would be different from the SME Development Bank, which operates under the Industry Ministry."
Local banks are also expected to face more competition under the Ignite Finance initiative because transnational companies may opt to use the financial services of banks from their own countries with branches in Thailand, said Mr Montri.
In this scenario, the benefits of economic development would be limited to large companies, not SMEs, he said.
