Decline in liquidity fuels banks' battle for deposits

Liquidity in the banking industry has declined to between Bt800 billion and Bt900 billion from about Bt1.2 trillion last year because the skyrocketing growth in credit and the trade deficit in the first quarter, Apisak Tantivorawong, president of Krung Thai Bank (KTB), said yesterday.
Kosit Panpiemras, executive chairman of Bangkok Bank, said competition for deposits could not be relieved because of the huge appetite for funds from households, the private sector and the government.
Capital outflow is another factor pressing on liquidity. The banking industry must keep its eye on the European debt problem because of its influence on fund flows. Liquidity might be drawn away, so the bank has attempted to balance loan extension and deposit mobilisation.
Bangkok Bank this year targets growth of loans and deposits at 6-8 per cent.
Subhak Siwaraksa, president and chief executive officer of CIMB Thai Bank, said foreign capital would continue to be pulled out of Thailand and other Asian countries because foreign investors want to keep cash to prepare for unexpected ripples from the European debt problem.
The outflow has depressed the Stock Exchange of Thailand and the baht. The financial market cannot avoid the impact. Loan expansion also outstrips deposit mobilisation, so each bank has to raise funds to ensure enough liquidity, he said.
KTB’s Apisak believes the banking industry can deal with the demand for loans and the economic volatility thanks to the economic foundation.
The European debt chaos is definitely a worrisome issue for doing business, but all banks are expected to prepare themselves because they had gone through crises in the past.
The fight for funds in the banking industry is nothing unusual. Deposit products are similar to consumer products in that they have to be continually improved to attract customers.
CIMB’s Subhak said that to cope with the expected fierce scramble for deposits, the bank had to promote structured deposit products heavily that offer better interest rates than traditional deposits.
Structured deposits guarantee a maximum return on investment, so they are suitable for investors wanting to diversify risk. The minimum investment is Bt10 million.
Year to date, CIMB Thai Bank has launched structured deposits of Bt700 million. It targets Bt9 billion for the whole year.
The bearish sentiment for Asian stock markets is an opportunity for the bank’s foreign investment fund because the fund can select defensive stocks at lower prices.
The government should speed up investment especially in infrastructure projects to fuel domestic consumption and enhance competitiveness.
Although corporate loans in the first four months were down, CIMB Thai expects the situation to return to normal in the second half because of the rising cycle of exports. Its corporate customers are exporters.
CIMB Thai has maintained loan growth of 20 per cent this year. Small and medium-sized enterprises and retail banking are the key drivers, up 10 per cent.