Banks face cost test amid tight liquidity
Banks say one of their biggest challenges is to mobilise sufficient funds to meet surging loan demand while trying to keep the cost of funds as low as possible.
In general, loan demand in the second half is stronger than in the first half but the loan-to-deposit ratio of the entire industry for the first half was 92 per cent, meaning the industry is facing tight liquidity.
Kris Chantano-toke, executive vice president of Bank of Ayudhya, said last week that banks have to find a suitable cost of funds in order to maintain their net interest margin.
Even if banks promote attractive rates to draw deposits, they have to keep an eye on the cost of funds to protect their spreads. Banks with more retail loans are in a better position to offer higher deposit rates than banks with more corporate loans. Banks with corporate loans might not offer campaign rates as much as banks with retail customers.
The next challenge is how to develop campaign products amid the trend of falling rates.
Banks’ interest rates are based on the policy rate. Several countries have slashed policy rates as they attempt to deal with the euro financial crisis. This might influence the policy rate in Thailand. If the Bank of Thailand decides to cut the benchmark rate, local banks have to cut their rates to stay in line with the policy rate.
Lower rates of deposit products might not attract investors, so banks need to raise funds from alternative products such as insurance and mutual funds.
Smith Banomyong, execu-|tive vice president of Siam Commercial Bank (SCB), said banks have to promote attractive products but at reasonable costs.
Deposit products to be launched in the second half must match up with the mass market and affluent customers while banks have to add services with the products to enhance their value proposition.
All-in-one deposit product development is another challenge for banks.
SCB plans to roll out three to four products in the second half, of which one will be a spotlight for the banking industry. It has also focused on issuing debit cards as part of the launch of new deposit products.
SCB is expected to chase the most funds because its loan growth rate is the highest among the top four banks.
The bank’s deposits in the first half grew by more than 10 per cent or Bt100 billion. The deposit growth target might be revised up because the bank has revised up loan growth.
Praphan Anu-pongongarch, executive vice president of Thanachart Bank, said the trend of interest rates today is hard to predict because the repurchase rate might not be based solely on inflation. Global economic volatility might also play a part.
To ensure a steady supply of funds and keep their cost low, the bank has designed deposit products to match up with customer choices.
Ultra Savings offers the highest rate of 3 per cent for customers wanting a short-term investment and planning to spend money in the near future. For depositors not sure the policy rate will be increased or decreased, the bank will suggest the fixed deposit called "Super Grow Up 15 months".
It allows them to make withdrawals once every five months while enjoying a high interest rate of 3.2 per cent.
