OPINION: Thailand's Local Banks Need to Regain Competitiveness.

Byline: Tim Bennett and Kim-Wee Koh

Sep. 3--As foreign banks aggressively enter Southeast Asian markets, the new players capture shares of the most attractive retail and corporate customers and increase competition, eroding margins across the entire industry.

Local banks are acting to retain their attractive customers, but we believe this is insufficient. They must also address the effects of increased competition, which is leading to declining profitability in the small proportion of their customer bases.

So, what additional steps should local banks take? Reducing costs will clearly be an imperative, but simply reducing staff or branch numbers will be both difficult and insufficient. Local banks will have to change the behaviours of both their customers and their staff if they are to meet the challenge.

In retailing, the key challenge will be to change consumer behaviour to reduce the cost-to-serve. This will require action from individual banks as well as from regulators and the industry.

Individual banks must focus on reducing network costs and product delivery costs. Seven years ago, Standard Bank in South Africa launched an electronic easy-to-use ATM card-based product, Autobank E-Plan account, targeting at the low-end of the market.

The product is delivered through ATM centres that comprise on-site E-bank assistants to coach customers. Each centre costs as much as 40 percent less than a traditional branch.