Krungsri Global Markets Develops Risk-Mitigating Products to Support ESG and Customers' International Business Expansion

11 Jul 2024

Krungsri (Bank of Ayudhya PCL), through its Global Markets Group, is strengthening its position by developing products that align with environmental, social, and governance (ESG) principles alongside foreign exchange products and digital channel services. Despite the relatively low growth in Thailand's export and import values in the first quarter of 2024, Krungsri's responsive products and services have driven a 13% increase in foreign exchange transaction volumes compared to the same period last year.

Krungsri Global Markets Develops Risk-Mitigating Products to Support ESG and Customers' International Business Expansion

Mr. Hirotaka Kuroki, Krungsri Head of Global Markets Group, said that, in 2023, Krungsri's profit from trading and foreign exchange transactions soared to 5,732 million baht,
a 21% increase from the previous year. This success reflects the bank's continuous efforts in developing new products and services across various areas, including support for ESG principles, expansion in the business of emerging market currencies, as well as digital transformation to address evolving customer needs and foster sustainable growth for customers and Thailand.

Supporting the Implementation of ESG Practices

Regarding ESG initiatives, last year, Krungsri Global Markets actively participated in mobilizing capital through the issuance of a Green & Blue Bond, totaling an impressive USD 400 million, to support climate change and marine resource management initiatives. The funds raised were exclusively allocated to provide loans for customers' environmentally related businesses.

"Krungsri Global Markets remains committed to supporting Thailand's development and the sustainable growth of customers through collaboration with the Mitsubishi UFJ Financial Group (MUFG), offering products and solutions that assist clients in expanding investments and implementing ESG practices in ASEAN, such as ESG-Linked Derivatives. These instruments are designed to help clients manage interest rate risks associated with loans while also providing benefits based on their achievement of ESG goals. The product has garnered significant interest from corporate customers practicing ESG principles. This year, Krungsri will continue developing products that reflect the implementation of ESG practices," emphasized Mr. Kuroki.

Strengthening Foreign Exchange Products and Services

Over the past 2-3 years, Krungsri has observed a significant increase in customer demand for foreign exchange transactions in currencies other than the US dollar. In response, Krungsri Global Markets expanded its service offerings to include the UAE dirham (AED) earlier this year, in addition to the South African rand (ZAR) and Vietnamese dong (VND), which were introduced last year.

In addition, Krungsri Global Markets has continuously developed and expanded its services through digital channels, resulting in a significant increase in online foreign currency transaction volume and total amount. The number of corporate clients using the FX@Krungsri e-platform for foreign exchange transactions has seen continuous growth. In 2023, the figure rose by 129%, followed by a further 66% increase in the first half of this year. Presently, foreign exchange transactions executed via FX@Krungsri have jumped by 54% compared to last year. Furthermore, retail customer transactions conducted through the KMA krungsri app, which facilitates convenient international money transfers in up to 15 currencies, maintain steady growth. The app processed over 35,000 transactions in 2023.

Overall, the Thai economy is expected to grow by 2.4% this year, with the value of exports and imports in the first quarter increasing by only 1%. However, Krungsri Global Markets' foreign exchange transaction volume has surged by 13% during the same period.

"Our commitment lies in developing our services to meet the evolving needs of our customers and conducting our business responsibly toward society and the environment, contributing to a sustainable future for Thailand," concluded Mr. Kuroki.

Presenting an overview of the exchange rate and interest rate situation in the second half of 2024, Ms. Roong Sanguanruang, Krungsri Senior Vice President of Global Markets Planning Division, said, "Krungsri Global Markets strategists assess that the baht has weakened in the first half of 2024 as the US economy adapted better than anticipated to high interest rates. Looking ahead, we expect clearer signs of a slowdown in US inflation and economic activity, which will likely prompt the Federal Reserve (Fed) to start reducing interest rates from the end of the third quarter. Our exchange rate outlook is based on the key assumption that the Fed will adopt a less restrictive policy, resulting in a soft landing scenario. However, negative factors outside the United States, including investor concerns about the fiscal stability of core Eurozone countries and significantly negative real rates of return in Japan, could further bolster the dollar in the short term. Moreover, we anticipate the baht to rebound by year-end, driven by a shift in Fed policy and momentum in the tourism sector."

"We anticipate the baht's value fluctuating between 34.50 and 36.75 baht/dollar in the final quarter of the year. However, its potential for appreciation may be limited amid the Thai economy's lack of outstanding growth potential, ongoing capital outflows, and looming challenges from global trade dynamics. Moreover, beyond the cyclical situation, despite the return of tourists post-epidemic—which should stabilize the baht from further depreciation—and coupled with the fact that Thailand maintains robust international reserves and relatively low foreign debt levels, if structural issues hampering the country's competitiveness are not effectively addressed, the long-term current account surplus could diminish, ultimately weakening the baht's resilience. Regarding Thailand's monetary policy, we anticipate that the Monetary Policy Committee (MPC) will likely maintain interest rates at 2.50% throughout this year. Meanwhile, policymakers' communications to market participants emphasize the importance of maintaining stability and reducing financial vulnerabilities in the medium to long term."