Banks reluctant to cut loan/deposit rates
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Commercial banks perceive the Bank of Thailand's policy rate cut on Wednesday as a sign of worries over external factors, not the pressure for a cut in lending and deposit rates.
"The BOT's signal is not for lending/deposit rate cut, but indicative of concerns in the global economy," said Kittiya Todhanakasem, a senior executive vice president of Krung Thai Bank.
"Commercial banks can cut rates accordingly, when the time is right. There's no need for immediate response. As the move will cover both lending and deposit rates, it will affect both depositors and borrowers. It's difficult to lower deposit rates in light of loan growth, with substantial need for funding," she said.
Kasikorn Research Centre also foresees greater competition for deposits, particularly in the last quarter of this year when some deposits would flow to the insurance and mutual fund industries. The fierce competition will continue if loan growth continues at this pace.
The research house also commented that the Bank of Thailand's rate policy will be tied with domestic and external factors. Externally, the US fiscal cliff, the euro zone crisis and the hard landing in China would be in the picture. Internally, the momentum of domestic consumption and investment will depend on the government's public investment.
Asia Plus Securities said in its research note that it does not foresee any loan and deposit rate reduction in this round.
"We believe that in the short term there will be no reaction from local commercial banks to this round of policy rate cut in a form of loan and deposit rate cut. This is because many banks are bearing high funding cost from aggressive deposit raising in the past," it said.
According to recent data from the Bank of Thailand, loan to deposit ratio or LDR (excluding bills of exchange - B/E) at end-August 2012 of the overall banking sector stood high at 95 per cent (it would be 91 per cent if including B/E) although it already dropped from 108 per cent at end-2011.
The high LDR resulted from aggressive deposit raising (with the growth of 22.4 per cent from end-2011, the record high in several tens of year) compared with the loan growth of only 8.4 per cent from end-2011, or an excess liquidity of B1.77 trillion due to the following reasons: 1) a replace of B/E with deposit as the BOT’s collection of B/E issuing fee for the first time at a rate of 0.46 per cent has influenced commercial banks to turn to raise capital through deposit instead of B/E, and 2) a preparation of high liquidity of reserves for loan issuance in 2013 as well as disbursement of already-issued loans.
"Consequently, with the rising fund cost from rising competition in deposit raising, we believe the banks will not reduce their interest rates in this round. However, if any bank decides to cut the interest rates to respond to the government’ policy, other banks might subsequently cut their interest rates, though limitedly such as only 0.12-0.125 per cent which is lower than the repurchase rate cut, in order to keep their market share," the house said.
Though, it expects a cut in loan and deposit rates if the BOT cuts the repurchase rate again in the November meeting.
