Balance Sheets and Economic Recovery

This paper first documents the recent changing landscape of Thailand's financial sector, noting in particular the decline in bank credit intensity of production. It discusses the reasons behind the observed trend of bank disintermediation and analyzes whether these factors are likely to persist into the future. In this fact, three key issue are addressed i) the current state of bank balance sheets and the extent to which this may be holding back credit; ii) the observation of growth without credit; and iii) the impact on the monetary transmission mechanism. Moving on to a medium-term perspective, the paper discisses how financial structure (the degree to which the financial system is bank- or market-based) matters for long-run growth, highlighting, in particular, the problems that may arise from an over-reliance on bank-based intermediation. Finally, the paper analyzes the state of financial access in Thailand and its role in facilitating long-term growth. The central message is that the importance of financial access in sustaining growth, especially in the provinces, cannot be understated and significant room for improvement remains in this respect. The paper concludes by offering some policy recommendations that focus on tackling both the short- and long-term problems in Thailand's financial system.