Impact of foreign entry into the banking sector: The case of Thailand in 1999–2014

This paper examines the impact of foreign capital entry on the cost and profit structure of commercial banks in Thailand using bank-level panel data for the period 1999–2014. We distinguish between market-level and individual bank-level impacts. First, we found that market-level foreign capital presence resulted in increases in interest rate spread and non-interest income, and reductions in operating expenses, resulting in higher returns on assets. Second, the increase in bank-level foreign ownership share in domestic banks resulted in a rise in interest rate spread and lower default risk, but at the same time, an increase in operating expenses. Finally, the acquisition of local banks by foreign banks resulted in only a moderate increase in interest income, and the profit structure of these banks remained vulnerable due to their small size. Thus, foreign entry into the Thai banking sector at the beginning of the 21st century has had multi-faceted effects.