Bangkok Bank’s Landmark Deal Opens Path To Southeast Asian Expansion

With the successful takeover of Indonesia’s Bank Permata, the third-generation president of Bangkok Bank Chartsiri Sophonpanich has set the stage to dramatically expand the bank’s regional presence.

Bangkok Bank’s $2.7 billion acquisition of Bank Permata is not only the largest by value in the 76-year history of the bank, it is also one that promises to be transformative. The deal will change Bangkok Bank from a major Thai bank with a good Asian network into one that has a strong foothold in two of Southeast Asian’s most important economies—laying the groundwork for years of sustainable growth.

It is also a personal milestone for Bangkok Bank president Chartsiri Sophonpanich, 62, allowing him to fortify his family’s legacy and enhancing the bank’s regional aspirations pioneered by his grandfather Chin, the cofounder and first president of the bank in 1944. 

“Normally we grow organically,” says Chartsiri in a video call from his office at the bank’s Silom Road headquarters in a rare interview. “We don’t grow by acquisition.” Yet the opportunity in Indonesia—one of the world’s largest and fastest-growing economies—was too good to pass up. 

The widely watched move in Asian bank consolidation comes as Thailand’s commercial banks look elsewhere for growth as headwinds at home weaken profitability. First announced in December 2019 in a conditional offer, Bangkok Bank in May last year completed the purchase of an 89% stake in Bank Permata from Standard Chartered and Jardine Matheson’s Indonesian subsidiary Astra International. It then upped that amount to 98.71% after a mandatory tender offer in October. The two banks’ Indonesian branches were officially integrated in December last year. 

Bank Permata, which operates under the name PermataBank, gives Bangkok Bank some 4 million new customers, 300 nationwide branches, and adds about $13.8 billion to the bank’s asset base, which stood at roughly $126 billion in total assets in the first quarter. More significantly, it boosts its position as the go-to lender to support clients’ own ambitions in the region. “PermataBank was a strategic acquisition,” says Chartsiri.

“The regional market is growing much more strongly than Thailand and with international [loans] accounting for more than 24% of our portfolio, we can expect this to support our ongoing growth.” 

It’s a bold move for the soft-spoken third-generation head of Thailand’s largest bank by assets to reinvigorate growth. After early years of moving at breakneck pace under Chartsiri’s father and grandfather, the bank has struggled with momentum in its home market in the face of slowing economic growth, high household debt and low interest rates.

The pandemic dealt a further blow to Thailand’s tourism-reliant economy, with smaller businesses among the hardest hit—a third wave of infections has dampened hopes of a quick or steady recovery. “People are quite cautious and also very careful about their spending,” says Chartsiri, who ranks No. 32 on this year’s Thailand’s 50 Richest with a net worth of $1.15 billion. 

The pandemic also weighed on investor confidence in Thailand’s largest banks—which posted their lowest net profit in ten years in 2020—including Bangkok Bank. The SET-listed stock, which ranks among the ten largest by market cap on the exchange, hit a low of 88 baht ($2.73) in March last year. While the stock has since recovered to about 115 baht, it is still trading below 2011 levels.

It’s easy to see the reason: Bangkok Bank reported the biggest decline in 2020 net profit among Thailand’s lenders—which have had to shore up loan-loss reserves over concerns of rising bad debt—falling over 50% to 17.2 billion baht ($541 million) year-on-year. Bangkok Bank also lags on a regional level, ranking as Southeast Asia’s sixth-largest bank by total assets, but only 14th by profits, according to this year’s Forbes Global 2000 list of the world’s biggest companies.

“If you’re a bank sitting in Thailand, you need a growth strategy. Bangkok Bank going into Indonesia therefore makes strategic sense,” says V. Shankar, CEO of private equity firm Gateway Partners, and a former senior banker.

The expansion to Indonesia is a landmark move on several levels. First is scale: with 276 million people, Indonesia has the world’s fourth-largest population after China, India and the U.S. Then there is the demographic dividend: with a median age of 30 and a fast-growing middle class, Indonesia has a huge domestic market, with a GDP of over $1 trillion. Indonesia’s emerging consumers, as they grow older and richer, will power long-term demand for financial services.

In contrast, Thailand’s 67 million people are aging—20% of its population will be over 60 this year, and the average age is over 40—and infrastructure spending has tapered off. GDP growth, already slowing, contracted 6.1% last year. Indonesia has fared slightly better: its GDP shrunk 2.1% over the same period.

This year, Thailand’s economy is expected to grow 3%, while Indonesia’s will see 4.5%, according to ADB forecasts made in April. “We see the growth potential of Indonesia over the next ten, twenty years,” Chartsiri says, who expects Permata to grow on the back of that (the bank will continue to operate under its own name in Indonesia). “Then there is the per capita income [about $4,000 in 2020], he adds, “which is at the level where we will see a significant transition moving forward. There will be many requirements for infrastructure, manufacturing, service sector and on the consumption side.” 

These opportunities extend to its customers—in Thailand and elsewhere in the region including Hong Kong and Singapore—eager to do business there. “There are also different levels of investment of Thai companies in Indonesia,” Chartsiri says, pointing to coal miner Banpu, packaging and construction conglomerate Siam Cement and petrochemical behemoth PTT.

Indonesian customers in turn can tap Bangkok Bank’s international network—the bank has long ties with the region. It has had a branch in almost all its Asian neighbors for at least 25 years, and in some cases over 60 years, such as Hong Kong, Singapore and Tokyo. Aside from helping Thai companies in Indonesia (and vice versa), corporate clients from elsewhere may give Bangkok Bank more business due to its wider reach. By adding 300 branches to Bangkok Bank’s Indonesia lineup (there were three before), it is now a truly local bank in Indonesia. 

Then there are international loans, which are expected to grow at a faster rate than total loan growth, estimated at between 3% and 4% this year, as the bank targets new corporate customers like those in China looking to diversify and invest in ASEAN.

In an early sign that tapping Indonesia will pay off, the Permata merger boosted the bank’s net interest income by 8% to 77 billion baht last year. Chartsiri also moved quickly to consolidate the merger, with a reshuffle of the board of commissioners and board of directors at Permata and an injection of $744 million in fresh capital into Permata.

Meanwhile, back in Thailand, a recovery in exports as global demand picks up lifts the outlook for Bangkok Bank’s business customers—about a third of its loans go to manufacturers while SMEs get about a quarter of the total. At the end of the first quarter, Bangkok Bank’s nonperforming loans stood at 3.7%, down from 3.9% at the end of last year. Bangkok Bank reported stronger-than-expected earnings of 6.9 billion baht, down 10% year-on-year but up twofold from the previous quarter.

“The [bank’s] loan-loss reserve coverage is good,” says Parson Singha, senior director at Fitch Ratings (Thailand). Adds Jesada Techahusdin, a research analyst at Maybank Kim Eng (Thailand) in a report: “Its strong relationship with large corporates is BBL’s [Bangkok Bank’s] core competitiveness. Long-term ROE is 7.8% of capital. But this is compensated by a strong balance sheet with high NPL coverage.” He projects corporate loans will drive loan growth by 3% this year.

IN AN EARLY SIGN THAT TAPPING INDONESIA WILL PAY OFF, THE PERMATA MERGER BOOSTED THE BANK’S NET INTEREST INCOME BY 8% TO 77 BILLION BAHT LAST YEAR.

Chartsiri is a seasoned banker. He has been Bangkok Bank’s president since 1994 (he also sits on the board of Bangkok Post Co., which is the licensee partner for Forbes Thailand). When he first came into the role, the bank was riding high as Southeast Asia’s biggest commercial bank by assets and Thailand’s economy was booming, fueled by dollars borrowed from overseas.

Yet just three years later the Asian financial crisis started in Thailand when the baht was allowed to float in July 1997 and its value against the dollar nosedived by more than 50%. As the contagion spread across Asia, Thailand became patient zero—with companies crippled by massive unpaid debts and the effective collapse of 56 Thai finance firms. Bangkok Bank’s market cap shrunk 75% to $2 billion.

Confronted with the biggest test of his career, Chartsiri buckled down, and spent the next few years cleaning up the bad loans on the bank’s balance sheet and selling some of the family’s shares in the company to bring in fresh capital. He succeeded, and put Bangkok Bank back on track for steady growth (and the region as a whole started to recover as well). A test of the solid footing he created for the bank came in the global financial crisis of 2007-2009, through which the bank passed relatively unscathed. 

Yet in recent years, Bangkok Bank has been facing a new test. Its once-lesser rivals Kasikorn Bank and Siam Commercial Bank have pulled ahead of Bangkok Bank in both market cap and net profit. One major factor: Bangkok Bank needs to strengthen its e-banking prowess. “[The bank] appears to have lagged building digital capabilities at par with peers,” says Harsh Wardhan Modi, co-head of Asia ex-Japan bank research at JPMorgan in Singapore, in a report, who has a neutral rating on the bank’s stock.

The pandemic, which accelerated digitalization worldwide, only accentuated Bangkok Bank’s need to play catch-up. While the bank’s IT spending in the fourth quarter pushed up operating expenses, Modi writes, “it is likely that the bank may need to spend an increasingly large amount of opex [operating expenses] in the next two to three years, dragging operating leverage.” 

Chartsiri responds that digitalization has been a priority. “Bangkok Bank has been working on this over the years,” he says. Some of the innovation at the bank, he notes, may not be readily apparent from the outside, as it has been in areas such as upgrading the bank’s internal systems, expanding its digital payments platform and embracing blockchain technology for its international trade finance.

Permata has solid digital capabilities. “Their mobile banking system is very good, quite outstanding,” says Chartsiri. He makes clear that his bank has to dive deep into digital. “We need to. . . . transform ourselves in the digitalization process, change the mindset of the people to move to another level, and make better use of information, analytics, artificial intelligence and machine learning to provide greater support to our customers,” he says. Another positive sign? One of Chartsiri’s sons has a special personal interest in digital banking.  

With additional reporting by Ardian Wibisono

Changing Hands

Bank Permata, now being combined with Bangkok Bank, is itself the result of a merger. It emerged from the ashes of publicly listed Bank Bali and four other Indonesian private lenders in the wake of the Asian financial crisis. Bank Bali had been one of the country’s largest private lenders with a strong grip on the consumer sector. It was taken over by the Indonesian government in 1999 after a graft scandal known as Baligate, and merged with four other collapsed lenders. Five years later, the government sold the bank now called Permata to Astra International and Standard Chartered. 

While Permata had a solid reputation, given its ownership by two well-regarded organizations, it held an awkward position in the market. Standard Chartered had a separate operation in Indonesia under its own brand making that country one of the few worldwide where the bank operated under two brands. The Permata sale gives Standard Chartered brand clarity in the country, while Astra is freed to focus on its core business of selling cars. 

Jakarta-based Suria Dharma, head of research at securities firm Samuel Sekuritas Indonesia, expects Permata to benefit from having a single shareholder. “With Bank Permata becoming a Buku IV lender [Indonesian banks with total capital over 30 trillion rupiah ($2.1 billion)] after integrating with Bangkok Bank’s local branches in Indonesia, and Bangkok Bank injecting more capital, Bank Permata should have sound fundamentals,” Dharma says. Chartsiri is now Permata’s president commissioner, while the rest of Permata’s commissioners and directors are a mixture of Indonesians and Thais. —Ardian Wibisono

Many Dreams

Chartsiri’s grandfather, Chin, the bank’s cofounder and first president was a well-known personality in the region. He was the first lender and role model for an emerging generation of Southeast Asian entrepreneurs in the 1950s and 1960s who would later populate Forbes Asia’s rich lists. Among those whose fortune he helped launch was a then-obscure Malaysian entrepreneur named Robert Kuok. “Most banks didn’t talk to us until Chin Sophonpanich of Bangkok Bank came along,” writes Kuok in his 2017 autobiography Robert Kuok: A Memoir, noting that his first substantial bank loan came through Chin. “Most of the Chinese businessmen of Singapore and Malaysia owe a lot to Bangkok Bank and Chin.” 

Chartsiri’s late father, Chatri, the bank’s president from 1980 to 1992, carried forward that legacy. Chartsiri was destined for the bank early on, following the advice of his father: “Study whatever you like, but then you can take up a business course later,” he recalls. After getting a bachelor’s in chemical engineering at Worcester Polytechnic Institute in Massachusetts in 1980 he did just that and headed to MIT for two master’s degrees one in chemical engineering and the other in management. “I am fascinated by chemistry and chemical engineering,” he says, “it helped me to think systematically.” After graduation he worked for Citibank in New York for a year, before heading home in 1986 to take up a job in Bangkok Bank’s treasury department. Of his five children, Chartsiri’s two sons work in the bank (both are in their twenties), one in corporate banking and the other in consumer banking. Chartsiri says. “When I was young well, people can have many dreams,” he says. “I came back to the family business and it has been good.”