M&A activity in Thailand's financial services is set for a rebound in 2024

Wednesday 03 April 2024 13:02
Potential reduction in interest rates, issuance of virtual banks licences, debt restructuring and digitalisation support recovery
MA activity in Thailand's financial services is set for a rebound in 2024

PwC Thailand predicts a resurgence in mergers and acquisitions (M&A) within the country's financial services sector in 2024, following a sluggish year.

Factors such as issuance of virtual bank licences, debt restructuring, and digital capability enhancement are expected to support a recovery of M&A activities. Financial institutions will need to reassess their deal objectives, evaluate costs, and ensure that deals align with their business strategy, it said.

Phuwin Norchoovech, Deals Partner at PwC Thailand, said that M&A in the Thai financial services sector are poised to rise in both volume and value in 2024, following a slowdown in 2023. The anticipated rebound is attributed to expected reduction in interest rates, further clarity on political landscape, and stabilisation of global and local economic situations.

"Deals activity in the financial services sector experienced a slowdown last year due to high interest rates, resulting in elevated financial costs. Global economic and political uncertainties also led many businesses to adopt a wait-and-see approach to assess their impact on Thailand," Phuwin said.

"However, Thailand's fundamentals remain strong compared to other countries in the region. As we enter 2024, we're cautiously optimistic that several uncertain situations are starting to become clearer. Combined with the anticipated reductions in interest rates, this should stimulate a rebound in M&A activity," he said. 

On 7 February, Thailand's central bank left its key interest rate unchanged at 2.5% but analysts said the BOT could start cutting rates as early as the second half of this year.

Global M&A in the financial services industry is expected to increase in the volume and value in 2024 compared to last year, according to PwC's Global M&A Trends in Financial Services: 2024 Outlook. In 2023, global M&A volumes and values in financial services declined by 12% and 40%.

However, recent positive signs, including actions taken by central banks worldwide and an uptick in M&A activity in the financial markets, indicate a recovery from a period of uncertainty driven by economic factors such as inflation and interest rates, the report said.

The Thai financial services industry is expected to be a hotspot for deals activities this year, particularly in the banking sector, Phuwin said.

This anticipation comes as the BOT plans to issue unlimited licences for branchless commercial banks, also known as virtual banks. There will be new players in the banking landscape, focusing on the unserved and underserved segments. Some incumbent commercial banks may want to grow and protect by forming strategic alliances with non-bank partners such as technology, telecommunication or retail businesses, and increase investments in digital banking capabilities, he said.

Following the turmoil in the debenture market, banks will be busy helping their customers in various financial solutions, such as debt restructuring and other fund raising activities. Other M&A activities such as divestment may also arise from financial distressed situations. 

In the insurance sector, M&A activity is expected in the non-life insurance business, Phuwin said.

"In Thailand, there are about 50 small and large-sized entities. In the upcoming phase, small companies with limited capital bases may encounter challenges in terms of growth and rising costs, and regulatory capital may put pressure on M&As, as they are required to maintain a minimum capital requirement in accordance with risk-based capital regulations and Thai Financial Reporting Standards No. 17 or TFRS17, as specified by the regulator," Phuwin said.

Newcomers to the industry, particularly businesses with substantial customer bases like payment service providers, retailers, and other non-banks, may seek to expand downstream by acquiring insurance businesses, he said. 

Digital transformation continues to be a strategic priority, particularly for banks and insurance companies where technology is an integral part of business operations. 

Banks and insurers must actively seek partners to support ecosystem expansion, provide stable technology, and reduce costs with improved customer experience. On the other hand, fintech companies will require business partners such as banks and insurers who can provide capital for ecosystem development and the establishment of a viable business model.

Phuwin said, "While waiting to assess the direction of financial costs, businesses have an opportunity to reconsider the purpose of their deals. Is it for portfolio expansion, ecosystem growth, or acquiring new capabilities? Once the purpose is identified, it is crucial to evaluate whether the goals are worth the costs associated with completing the deal. 

"Costs encompass not only the funds required for the purchase but also expenses before and after the deal is made. A successful deal must be aligned with the organisation's strategic objectives and priorities." 

Source: PwC Thailand