3 reasons why reduced fees on money transfers won't affect Thai banks' fee income

For one, e-payment implementation is still far-fetched.

The Bank of Thailand Governor recently said that banks' fees are poised for a change to better reflect actual costs and pave the way for a cashless society. Moreover, he mentioned that the Thai banks’ fee is distorted as the fees for paper-based transactions are very cheap, compared to the associated cost.

The Finance Ministry’s National e-Payment project is also in progress, and, according to Maybank Kim Eng, its success could reduce banks’ cost for cash management and ultimately reduce the associated costs to retail customers.

Maybank Kim Eng believes the plan to reduce fees on money transfers will not affect banks’ fee income substantially for three reasons:

Firstly, we do not believe that e-Payment will be implemented any time soon. This is a huge and ambitious project which the policy makers have been working on for some time, with little progress made. Much related infrastructure would also need to be built such as a national clearing house and a reliable telecommunication system.

Without its success, commercial banks would have to rely on their own systems and bear the associated costs. Therefore, the Bank of Thailand could find it more difficult to reduce their fees charged to end-customers.

Secondly, fees on money transfers form only a portion of banks’ fee income. 9M15 gross fees from money transfers and related services such as ATM and electronic transactions accounted for 28% and 19% of total gross fee income and non-interest income. Banks have other sources of fee income such as bancassurance, securities and wealth management, which implies ample diversification.

Lastly, we believe that banks will cut charges only when their associated costs are substantially reduced. Thus, while income could be lower, so would costs. Their net fee income would not be much affected. 

In conclusion, since the project could take some time to complete and the impact on bottom lines less dramatic, we maintain that fee income will continue to shore up sector earnings amid weak loan growth.