Carl Middleton Ph.D.

REGIONAL BANKS, REGIONAL INVESTMENTS, AND REGIONAL RESPONSIBILITIES:

Strengths, Shortcomings and Trends of Thai Commercial Banks' Corporate Governance and CSR Policies

David J.H. Blake

Overview• Thailand’s commercial banks are increasingly

lending regionally• Despite a growing commitment to Corporate

Governance and CSR, Thailand’s commercial banks are yet to implement thorough reform

• “Sustainable Banking”:

– Banks can play a role in achieving socially and environmentally sustainable and just societies

– “Sustainable Banking” reduces risks and brings new investment opportunities for banks

Changing times, changing actors• Declining role of Western donors

and International Financial Institutions (ADB, World Bank)

• Increasing role of the private sector

– Independent Power Producers (IPPs)

– Build-Operate-Transfer (BOT) model

– Public Private Partnerships (PPPs)

• INTRAREGIONAL INVESTMENT: Project developers and financiers now largely from Thailand, Vietnam, China, Malaysia, Russia

• Regional banks are now key financiers …. and important decision-makers

Regional Powertrade Masterplan (ADB)

Regional hydropower developers…

• Thailand: – EGCO (Nam Theun 2) – Ratchaburi (Nam Ngum 2+3)– GMS Power (Nam Ngum 3, Theun Hinboun, Tasang (MDX)) – Ital-Thai (Ban Koum, Nam Theun 2)– Ch. Karnchang (Xayabouri, Nam Ngum 2)

• Vietnam: – EVN (Lower Sesan 2)– PetroVietnam (Luang Prabang) – Viet Nam-Laos Joint Stock Company (VLPC) (Xekamen 1+3).

Consortium includes Song Da

• China: – Sinohydro (Nam Ngum 5, Pak Lay, Nam Ou, Kamchay, Salween) – China Southern Power Grid (Sambor, Stung Cheay Areng, Nam Tha)

• Malaysia: – MegaFirst Corporation (Don Sahong)– Gamuda (Nam Theun 1)

Regional banks are now key financiers …. and important decision-makers

• Thai Banks– Projects include Nam Ngum 2, Nam Theun 2, Theun Hinboun Expansion project,

Hongsa… – Banks include Bangkok Bank, Bank of Ayudhya, Kasikorn Bank, Krungthai Bank, Siam

Commercial Bank, Thai Military Bank– ECA: Thai Export-Import bank heavily involved

• Vietnamese banks– Domestic state-owned banks important financiers of domestic projects– In Laos: Vietcom Bank and the Bank for Investment and Development of Vietnam (Xekaman 3 –

US$200 million)

• China Export Import Bank (Kamchay, Nam Mang 3)• Other financiers

– Access to bond and stock markets (Nam Ngum 2 on SET?; Xayaburi / CK Power Ltd (CKPL) on the Lao bourse?)

– Private equity (Leopard Asia – US$100 million…)– Pension funds…

Which Thai commercial banks

fund hydropower in Lao PDR?Nam

Thuen 2Nam

Ngum 2Theun Hinboun

Expansion ProjectXayaburi

(?)

Bank of Ayudhya X XBangkok Bank X XKasikorn Bank X X XKrung Thai Bank X X XSiam City Bank X X XSiam Commercial Bank

X X

Thai Military Bank X XThanachart Bank X

Thai commercial banks andco-financing in dams in Lao PDR

• Nam Thuen 2 and THXP are co-financed with international bank (that are also EP banks).

• Nam Ngum 2 is financed only by Thai commercial Banks

• These 7 banks are amongst the 8 largest in Thailand

All major Thai Banks are listed on the Stock Exchange of Thailand

• Asian Financial Crisis revised Thai Commercial Bank’s business model:– Foreign investment limits were raised– Increasingly, profits from financial services

rather than lending alone

• International bank involvement is by strategic investment and nominee investment

• Highly active international banks include:– JP Morgan Chase– HSBC– State Street Bank and Trust Company

Some Thai banks have strategic foreign investors, or partial government ownership

• Bank of Ayudhya + GE Money (33%)

• Thai Military Bank + ING (26%)

• Thanachart Bank + Bank of Nova Scotia (50%)

• Krung Thai Bank + Financial Institution Development Fund (FIDF) (55%)

Many international investors havecommitted to international

standards• Equator Principles

– HSBC

– ING

– Bank of Nova Scotia Yet…

• ING is a strategic investor in Thai Military Bank which has lent to Nam Ngum 2

• HSBC has endorsed the WCD, yet manages nominee accounts in Krung Thai Bank that is financing Nam Ngum 2

Thai Commercial Banks and Corporate Governance

• All Thai banks have a Corporate Governance policy, as guided by the Stock Exchange of Thailand– Society and environment is identified as an external

stakeholder to be considered– Requires compliance with countries laws– Some banks, such as Bank of Ayudhya, state that they will not

fund projects with adverse environmental impacts

• SET established a Corporate Governance Center in July 2002

Corporate Governance:Siam Commercial Bank

Social responsibility

To conduct the bank’s business with responsibility towards the society and with sensitivity when dealing with issues which are related to public interest; and to regularly support and participate in activities that are beneficial to communities and the society.

Environment

 To abide by environmental laws and regulations, implement effective safety and environmental management measures to prevent negative impacts on local communities, and promote employees’ awareness of and concern for the environment.

Corporate and Social Responsibility (CSR)

• Only Kasikorn Bank has a publicly available CSR policy

• Krung Thai banks supports the “Global Reporting Initiative” standards, releases an annual report on Social Responsibility, and has a Board level CSR committee

• Most other banks blend CSR with Corporate Governance or “Business Ethics”

• Largely based around aspirational statements:– TMB Philosophy “…TMB is focused on maximizing the benefits it brings to its stakeholders,

customers, and the community at large”

• Banks interpret CSR as philanthropic activities and encourage their staff to join in:– Education, Youth, Environment, Community Service, Arts…

• SET has established a CSR Institute, which has prepared non-binding CSR Guidelines.

Demand for Corporate and Social Responsibility (CSR) is growing

Competition in domestic personal banking is growing – CSR and media is a key factor

Siam Commercial Bank and Krung Thai recognize reputational risk as a key business concern

ACIHR is presently undertaking a sectorial study of CSR practices within ASEAN, aligned with a strategic objective of the “ASEAN Blueprint for the Socio-Cultural Community”

Proposed Xayaburi Dam: Banks move towards CSR commitments?

• Siam Commercial Bank (Post Today, 25 April 2011)

– “Artit Nanwittaya, deputy managing director of Siam Commercial Bank, said the Bank could not sign loan agreement with other 3 banks for Ch Karnchang's Xayaburi dam as scheduled this month, as there has been a strong opposition from local network in 8 Mekong provinces in Thailand and neighbor counties. As well, the Xayaburi project needs agreement from 4 countries that would be environmentally affected”

• At the time, Kasikorn Bank and Krung Thai Bank also indicated they were still reviewing the loan application.

Creating Green / Sustainable / Decarbonized/ Transparent/ Accountable… Banks

• Equator Principles

• UNEP-Financial Initiative

• UN Principles for Responsible Investment

• UN Global Compact

• Extractive Industries Transparency Initiative

• Carbon Disclosure Project

• Ruggie Principles on CSR and Human Rights: “Protect, Respect, Remedy”

• ISO 26,000

• Or, banks could develop their own in-house sector (agriculture, dams, forestry, …) and issue (biodiversity, climate change, human rights…) policies

Final Thought onBuilding Banks that are Sustainable

• Global economic crisis has raised public expectations for commercial banks to work in the interest of a sustainable society (Triple Bottom Line investment / Corporate Accountability)

• Some banks, such as Krung Thai Bank and Bangkok Bank, offer “Green Loan”

• Kasikorn Bank, Krung Thai Bank, and SCB are members of the Thailand Business Council for Sustainable Development, presently developing voluntary social responsibility guidelines

• Kasikorn Bank, Krung Thai Bank, and Siam Commercial Bank have won various SET annual awards for their governance reports

Final Thought onBuilding Banks that are Sustainable

•Absence of clear definition on CSR and its implementation, including on transparency, accountability and enforceability

•Regional investments entail regional responsibilities of due diligence, strengthening governance

•Beyond philanthropic and public relations-orientated CSR, social and environmental risk needs to be integrated into decision making processes:

• Policy, operationalization (systems in place), implementation (resourcing, and training and rewarding staff) and independent grievance/ dispute mechanisms.

• Sustainability reporting

Thank you for listening

Carl.Chulalongkorn@gmail.com

Master of Arts in International Development Studies Programme

Chulalongkorn University

© Suthep Kritsanavarin