Narrow yield curve 'behind bond trend'
Bank of Ayudhya predicts that the narrower yield curve between loans and bonds will move a number of corporations to raise funds through bonds to lock in the lower cost.
Tak Bunnag, executive vice president, told a news conference yesterday that the narrow yield curve was due to the Bank of Thailand’s lower policy rate.
This trend of larger corporations opting for issuing debentures instead of taking out loans was proved by the outstanding debentures worth Bt117 billion issued as of the end of last month, he said.
New bonds this year are expected to reach between Bt200 billion and Bt300 billion, against Bt200 billion last year. The property industry is expected to raise the most through the bond market, followed by energy and banking.
Property bonds will have short terms of at least three years, while energy bonds will have long terms of 10-15 years because of the massive investment domestically and abroad, he said.
The banking industry needs to lower its cost of funds during the low-rate environment because it has to reserve cash to guard against global economy volatility and prepare for the reduction of deposit-insurance coverage to Bt1 million in August.
However, borrowing is an important source of capital for companies that realise that the total cost of issuing debentures might not be much lower than bank loans because of the range of credit ratings.
Even though the banking system has excess liquidity of Bt2 trillion, banks need to mobilise funds for the economic recovery, when loan demand will be high. Banks also carry high costs from maintaining their interest rates even though the policy rate was cut to 3 per cent.
The repurchase rate in Thailand is high compared with neighbouring countries, but it is enough to fight inflation, so the Bank of Ayudhya expects the BOT will leave the rate at 3 per cent throughout this year.
The Financial Institutions Development Fund is among the key factors besides external variables such as resolution of the Greek debt, the US quantitative-easing policies and the fund flows that will have impacts on the economy and business performance.
Tak expects gross domestic product to grow 4 per cent this year, with exports and investment the key determinants. The forecast is based on the prediction that the global economy will expand by 3.3 per cent.
