How Mitsubishi UFJ could skirt Thailand’s foreign ownership regulations for control of Bank of Ayudhya

How Mitsubishi UFJ could skirt Thailand’s foreign ownership regulations for control of Bank of Ayudhya
Image: AP Photo/Itsuo Inouye
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Mitsubishi UFJ has its eye on a controlling stake in Thailand’s Bank of Ayudhya, according to the Wall Street Journal—a deal that could value Thailand’s fifth-largest bank by assets at over $3 billion. But there’s a problem—Thailand has strict regulations for foreign ownership of financial institutions.

The current regulations state that a foreigner can own just 25% of a Thai bank, or 49% with permission from the Bank of Thailand. Beyond that, the buyer has to win the approval of the finance ministry. But Mitsubishi may have a loophole.

The Journal reports that Thailand’s fourth richest man, Krit Ratanarak—worth just under $2 billion according to Forbes—is in talks with Mitsubishi about jointly securing a majority share. Mr Krit was CEO and chairman of Bank of Ayudhya until his resignation in 2007, so his entry into the talks is likely to pave the way for Mitsubishi to negotiate joint control of the bank, although how they would split share ownership is unclear. It looks likely that Mitsubishi will go ahead with its plan to buy a 25% stake from GE Capital, despite a previous denial from Bank of Ayudhya.

But there’s an added problem for Mitsubishi. Thai rules prevent a foreign bank from owning two separate financial institutions, so Mitsubishi may have to merge its existing operation in Thailand with its Bank of Ayudhya stake, unless it can negotiate an exception with the Thai government. Indeed, Thailand’s finance ministry and central bank have already said that they would like to see less competition in the banking sector through voluntary M&A agreements. They particularly welcome involvement from foreign banks that can “fill gaps within the system…in line with the trend of Thailand’s international trade and investment.” With that in mind, Japan’s special economic partnership and $100 billion trade target with Thailand will no doubt help Mitsubishi’s case.