Higher deposit rates likely as banks seek to build up liquidity

 
The veteran banker said that even though the market did not yet have a clear picture of US policy implementation under Trump, it was clear that the yield on bond instruments had already increased – with the yield in the Thai market alone having climbed by half a percentage point.
“While we expect Thai exports to recover from the past [couple of years], liquidity will be reduced due to capital outflows, as investors will move their money to the US to benefit from the higher yield in the US market,” Boontuck said.
“Meanwhile, the Thai economy in 2017 will be brighter, as the government gradually disburses investment for infrastructure projects, mainly in motorways. Therefore, banks have to prepare their liquidity to serve the lending demand.”
To sustain and attract liquidity, banks will raise their deposit interest rates early this year, while increases in the minimum lending rate should be seen in the second half, in line with lending demand, Boontuck forecast.
Banks will move their interest rates above the policy rate, which he believes the Bank of Thailand will maintain at 1.5 per cent throughout the year.
The funding cost of bond issuance will rise and corporates that plan to issue bonds will consider greater use of bank loans instead, which will drive lending growth in the banking industry during the course of the year, he added.
Based on expected gross domestic product growth of 3.5 per cent, overall bank lending in 2017 will expand by 6-7 per cent, with TMB hoping to grow in line with the sector, the CEO said.
Lending by the banking industry grew 2.5 per cent last year, according to Kasikorn Research Centre.
Competition for deposit products will become serious again this year, after the banks toned down their deposit campaigns during the past two years, according to the research house.
Meanwhile, liquidity in the banking industry is already seeing a slight tightening trend if the figure for November is anything to go by, as the loan-to-deposit ratio stood at 91.54 per cent, against 90.57 per cent at the end of October.
The ratio was 90.81 per cent at the end of 2015.
Changing culture to go digital
While digital disruption means that many banks are sharpening their organisation under the theme of transformation, Boontuck said that for TMB the adjustment of culture was a bigger challenge than digital transformation itself.
With the cost of technology today much lower than before, TMB can afford to invest in new technologies to strengthen its banking service, but achieving “a change of culture to go digital” is not so easy, he added.
To embrace digital, the bank must have a flat, hierarchical organisational structure, which is why it put three divisions – IT, branch network and mobile-banking application development – into such a structure last year, the chief executive said.
In his view, embracing digital for the bank must answer what that means for customers, which he sees as being three important things: ease and convenience in using digital banking anywhere, any time; low price; and cyber-security.
The fee structure between physical banking and digital banking in Thailand is distorted, he said, with the cost of physical banking currently the higher of the two.
In the transition from physical to digital banking, the industry must accept that fee income will be the first to go, followed by a gradual fall in cost savings from cash management, he suggested.
To deal with digital disruption and save costs in the future, it is time for all banks to start sharing utilities, with an ATM pool – or electronic data capture (EDC) pool – first on the agenda for Thailand, he said.
TMB and five other banks – Siam Commercial Bank, Krungthai Bank, Bank of Ayudhya, Thanachart Bank and the Government Savings Bank – have formed a consortium to create an EDC machine pool, with a view to ensuring that their systems are compatible with digital payments and the national E-payment system.
“Sharing utilities is part of ecosystem creation, which it is not easy to achieve, but the banks must do it. When I was head of the Thai Bankers’ Association, the association needed to create a five-year plan because when the change comes, the only way for the banks to deal with it is for them to lead that change,” he stressed.