A study of the relationships among the effects of banking deregulation, asset management ratios, and profitability of the banking industry in Thailand

The problem. The commercial banking industry in Thailand has been transformed from a fairly stable environment to a rapidly changing and highly competitive environment as a result of three general trends in the banking industry: (1) increased competition between banks, other depository institutions, and other financial companies, including foreign banks; (2) increased capital requirements; and (3) removed government banking restrictions. A reduction in the interest margin and the government's deregulation policy may affect performance in the banking sector.;The purpose of this study was to examine the relationships among the regulatory variables, strategic alternatives, and performance variables of the commercial banks in Thailand, in terms of their composition of loans, sources of interest income, and asset management, to address two vital questions: first, does deregulation affect banking managers' decisions in designing loan portfolios? Second, are there relationships among deregulation and each of the other key variables?;Method. A descriptive-correlational method was used to empirically investigate the expected differences of the pre- and post-deregulation periods. Two data-gathering forms were designed to collect information from the respondents. Tests were conducted to examine the significant differences between the bankers' perceptions of the helpfulness of Thai regulations among the extent of deregulation, asset-management ratios, and performance variables during pre- and post-deregulation periods.;Results. Findings confirmed the following: (1) Deregulation affected changes in banking managers' decisions when designing loan portfolios in response to the Thai financial environment, in order to maintain profitability; (2) Thai banking managers shifted from wholesale banking strategies, focusing on corporate customers in generating interest income, to retail banking strategies, accessing the retail customers in order to seek more fee-based income; and (3) under deregulation, the average ratio of personal to commercial loans and the amount of total assets increased, as did the ratio of net interest income to total assets. However, deregulation did not influence the income performance of Thai commercial banks in the post-deregulation period (1990-1993).