RETAIL BANKING | Staff Reporter, Thailand

What can we learn from the Krungsri-MUFG partnership?

Krungsri’s integration with the Mitsubishi UFJ Financial Group has boosted the Thai bank’s local strength and regional reach.

When Bank of Ayudhya (Krungsri) began its integration with the Japanese firm Mitsubishi UFJ Financial Group (MUFG) four years ago, it planted the seeds of transformation that have now grown and borne fruits of fast growth. The partnership has nurtured Krungsri’s assets to reach THB1.88t (US$54.2b) in 2016 from THB1.2t (US$34.6b) in 2014, catapulted the bank’s net profit to a new record last year, and enabled landmark transactions for leading Thai corporates.

Krungsri has been leveraging on the global expertise of MUFG, Japan’s largest financial group, to help build up its client base in Thailand and establish a foothold in other Southeast Asian countries. The bank’s impressive leaps in assets, profit, and regional presence can be attributed to the strategic partnership with Bank of Tokyo-Mitsubishi UFJ (BTMU), a member of MUFG, says Noriaki Goto, president and CEO of Bank of Ayudhya (Krungsri).

“Having BTMU as a key strategic shareholder gave us an unrivalled strength to provide total financial services to a wide range of customer groups,” he says. “The growth was phenomenal considering the challenging economic environment in Thailand, sluggish domestic consumption, and the uncertainty of global markets.”

Thailand’s rising star
Through the MUFG and BTMU integration, Krungsri gained a competitive advantage against rivals, becoming Thailand’s rising star in the banking sector. The bank combined its local network and newly unlocked full-scale global connection and product capabilities to improve its service to customer segments. For Japanese corporates and multinational companies, Krungsri developed a stronger suite of solutions, especially for their supply chain requirements.

Krungsri has become the largest provider of loans to Japanese corporates in Thailand, with more than 2,600 Japanese corporate customers in Thailand and more than 700,000 employees transferred from the integrated BTMU Bangkok branch.

“The successful completion of the integration between Krungsri and BTMU Bangkok Branch has given us a unique strength to deliver financial solutions that can differentiate Krungsri from our peers,” says Goto. “Krungsri is empowered to better respond to the financial needs of our large corporate clients with their cross-border trade and investment activities.”

Last year, Krungsri strengthened its cross-border transaction banking and foreign exchange business services for Japanese MNCs that are looking to establish international headquarters and international trading centres in Thailand. Two of the major highlights for Krungsri’s cross-border business in 2016 was Krungsri and BTMU providing financing services for one of Thailand’s largest cement companies pushing for expansion in Asia, and supporting one of Thailand’s largest retail groups in their overseas forays in Southeast Asia.

In March 2017, the Krungsri and BTMU synergy powered the largest transaction in history by Siam City Cement Pcl. (SCCC), which was also the largest cement acquisition outside of Thailand by a Thai corporate. Krungsri and BTMU joined forces to provide financial solutions and services to SCCC and its subsidiary, Siam City Concrete Company Limited (SCCO), in bidding and acquiring Holcim assets in Sri Lanka and Vietnam. The acquisition is part of SCCC’s strategic plan to diversify its business and become a leading regional player.

Goto believes Krungsri is now in a great position to rise in the ranks of Thai commercial banks as it leverages on its local expertise and MUFG’s global strength. This is why, in 2017, Krungsri has set its sights to become a top-tier commercial bank with a loan growth target of 5% and a deposit growth target of 12.6%.

Commercial banking has become a key driver for Krungsri’s asset growth since 2015, says Pornsanong Tuchinda, head of commercial banking at Krungsri, with services now spanning lending, investment banking, business matching, as well as debt and capital market advisory to Thai corporations, international companies, and small and medium-sized enterprises (SMEs).

Thai corporate loans accounted for 45% of portfolio in 2016, and growing 11% and outperforming the market despite economic headwinds and tougher competition. The large corporate segment accounted for 30% of total portfolio, whilst the SMEs segment was at 15%. Meanwhile, deposits from commercial banking clients increased by 9.8%.

Goto explains that everything is going according to the Mid Term Business Plan (MTBP) for 2015-2017 that the bank launched more than two years ago, following its MUFG and BTMU integration. The bank implemented initiatives to support this MTBP, including supply chain financing, cross-border financing, business matching, and payroll account acquisition. These enabled the bank to sprint ahead in three key areas: Asset growth, performance, and regional expansion.

Krungsri’s integration efforts have led to strong asset growth. Its market share of auto hire purchase rose to 24% in 2016 from 17% in 2014. Mortgage loans also experienced robust growth with THB60b (US$1.7b) in new booking, up from THB50b (US$1.4b) in 2015 and THB36b (US$1.04b) in 2014.

The Thai bank also managed to deliver a solid performance despite the challenges of a slowing domestic economy and global uncertainties. “The ability to deliver a strong performance largely attributed to strengthened operating platform and capability, together with the synergies achieved with MUFG and BTMU, which led to our enhanced non-interest income generation and increased efficiency,” says Goto.

Krungsri made significant strides as well across the Southeast Asian region. In 2014, it established a consumer and auto hire purchase joint venture and branch enhancement in Laos. The following year, in April 2015, it opened its representative office in Yangon to support corporate and SME clients. Then in September 2016, it acquired Hattha Kaksekar Limited, the fourth largest microfinance institution in Cambodia, which Goto views as “another step forward” in the bank’s mission to capture growth opportunities in the region, especially in its strong areas of retail banking and microfinance.

ASEAN: A digital powerhouse
Krungsri has an ambitious goal to transform into one of the most preferred banks in the ASEAN region, as well as a digitally powered institution equipped with the latest innovations in financial technology. “We aim to become a top tier bank in every customer segment and strengthen our position as a major ASEAN financial powerhouse,” says Goto. “The synergy between Krungsri’s local Thai expertise and MUFG’s global capability and networks has propelled Krungsri to strengthen the relationship with existing customers and expand new customer base.”

The bank is putting focus in growing its presence in the relatively underserved ASEAN subgroup of Cambodia, Laos, Myanmar, and Vietnam. Using its strong MUFG group partnerships, Krungsri has been supporting CLMV offshore investment. Krungsri has led Thai firms to join the July MUFG Business Matching Fair in Hanoi, collaborating with MUFG members including BTMU and Vietnam’s VietinBank. In the most recent business matching fair, around 100 companies participated, with more than 200 matches arranged in a single day. For many Thai firms, this was their first opportunity to participate in business matching in Vietnam.

“This year, we will enhance collaboration and maximise our current footprint in the region, whilst we continue to explore opportunities in Vietnam, where we can work closely with BTMU branches In Ho Chi Minh City and Hanoi,” says Goto. 

Aside from ramping up its ASEAN business presence, Krungsri will also double down on its digital banking investments and initiatives. Goto reveals that the bank has developed several digital platforms for customers, as well as a venture capital called Krungsri Finnovate to oversee investments in startups and financial  technology operations with an initial investment of US$30m.

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