BMI's Executive Summary

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From Q108 we will be calculating the Commercial Banking Business Environment Rating (CBBER) for each of the countries surveyed by BMI. This will permit a more systematic and comprehensive comparison of the conditions within the banking industries of the various countries than was possible in the past. For each country, it will also facilitate a comparison of the conditions within the banking sector and conditions prevailing in other sectors.

Thailand's overall CBBER is 58.5. Thailand has a fairly typical CBBER for a country in the Asia Pacific region, comparable to the figures achieved by India, Indonesia, and Pakistan. However, Thailand's CBBER is lacklustre in comparison to Hong Kong's impressive score of 79. Meanwhile, it is placed well above Sri Lanka's of 28.4, the lowest in the region.

Thailand earns moderate to high scores for each of the four banking market structure elements of the limits to potential returns. In relation to other countries surveyed by BMI, Thailand is a country where total assets are large, the likely growth in total assets is moderate, the expected growth in client loans is large and there is reasonably good potential for banks to earn fees from distribution of insurance products and other activities. The higher scores for the banking elements of the limits to potential returns and the banking elements of the risks to the realisation of returns tend to offset the impact of country risk elements, which are lower than many other countries in the region.

Buoyed by growth in exports and higher government spending, Thailand's economy managed to expand by an estimated 4.0% in 2007. An anticipated private sector revival should allow for faster growth in 2008, when we expect growth to accelerate to 4.8%.

Thailand's economy accelerated by 4.4% year-on-year (y-o-y) in Q207, up from a revised 4.2% growth rate in Q107, buoyed primarily by strong growth in the export sector. However, weak domestic demand, expectations of slowing export growth in the second half of the year and a low inflation environment leaves room for further interest rate cuts following the Bank of Thailand (BOT)'s latest decision to keep the benchmark rate on hold at October's policy meeting. Our core outlook for the economy is that it will remain weak until a revival in private sector activity takes place, which we expect to happen in Q208.

Private consumption growth in Thailand slowed from 1.3% y-o-y in Q107 to 0.9% in Q207. Consumer confidence has remained subdued following September 2006's coup, which has curtailed spending on new houses and automobiles and has led to a drop in the inflation rate to its lowest level in five years. Consumer prices rose by 1.1% y-o-y in August (eventually picking up to 2.1% in September), corresponding with a drop in consumer confidence, which is also now at a five-year low after dropping every month except two since the coup. Meanwhile, investment growth recovered from a 1.5% y-o-y drop in the first quarter to expand by 0.2% in Q207.