The central bank says service fees charged by Thai commercial banks are considerably more appropriate than those charged by banks in other countries.
“Thai commercial banks have cut the fees for their services, as the Bank of Thailand asked them to do, and by far their rates are not higher than those in other countries,” governor Prasarn Trairatvorakul said yesterday.
“For example, our money transfer rate is no higher than those in other Asean member states.”
Somkiat Tangkitvanich, President of the Thailand Development Research Institute, had suggested the Bank of Thailand remove ceiling rates in order to allow market mechanisms to work freely, as the control might have led to fee collusion among banks.
Mr Prasarn said the suggestion had to be considered carefully because it might not be as expected.
He said each bank set service fees mainly according to their operating costs. While their rates might have been different at one time, market competition had forced them to adjust their rates so that they could compete with their peers in the market and still make a profit.
“That might be the reason why their fees are not much different or even the same for the same service, as they have to compete with others. That might have misled people to believe that the same rate came from their collusion,” said Mr Prasarn.
“When we considered the appropriate level of these fees, we compared them with those of overseas banks. We have to understand the banking industry. Fee income comes from a number of transactions and the charge per transaction is not much money. Operating cost per transaction probably is only electricity, but banks actually have to invest a lot of money for infrastructure to be able to provide these services.”
Mr Prasarn said increasing the number of banks in the market was not key to increasing competition in the industry. It is more about the size of market players.
For example, Switzerland has only three large banks and Japan has only two large banks, but competition is fully liberalised because they are same size. In contrast, Thailand has a number of small banks.
Among Thailand’s 14 commercial banks, the fifth to the 14th largest are all partnered with global banks, which allows most of them to compete with foreign banks.
“Even if we allowed more small banks to compete in the market, there would be no benefits to the market because competition is about the efficiency of management. It is hard for small banks to compete with big banks in all areas of service,” said Mr Prasarn.
First published: Bangkok Post, October 22, 2014