FRIDAY, March 29, 2024
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Banks must learn to share their cost benefits with customers

Banks must learn to share their cost benefits with customers

WHO will be next to follow Kasikornbank (KBank) and Siam Commercial Bank (SCB) in introducing interest rate cuts after the Thai central bank recently convinced them to do so?

On April 29, the Bank of Thailand (BOT) signalled a downward trend for interest rates in the financial market by slashing its overnight lending rate by another 25 basis points to 1.5 per cent after it had cut 25 basis points in March. Yet, none of the commercial banks took the BOT’s hint until KBank’s announcement on Wednesday to spearhead its loan rate cuts. 
Kbank, one of the country’s top five commercial banks by assets, is treading a bold path by announcing it would introduce cuts in various loan rates in a range of 13-25 basis points, effective from today. Initially, the measure will partly trim the bank’s revenue, as the bank has not decided yet when to cut its deposit rates. 
According to KBank’s new rate cuts, the minimum loan rates will be 6.5 per cent per annum, the minimum overdraft rate will be 7.37 per cent and minimum retail rate will be 7.87 per cent.
KBank chief executive officer Banthoon Lamsam conceded at an urgent press briefing that this would have a negative effect on the bank’s revenue, and result in a possible drop in the bank’s share price. 
However, Siam Commercial Bank on Wednesday also released its statement on loan rate cuts, offering its customers loans with an interest cut of 10-30 basis points. The minimum loan rate for good customers has been cut to 6.525 per cent annually while the minimum retail rate was cut by 30 basis points to 7.82 per cent. 
The two banks’ moves came after the Thai Bankers’ Association met with BOT Governor Prasarn Trairatvorakul on Tuesday, who requested their cooperation in passing on the central bank’s monetary easing policy to the customers apart from helping small and medium-sized enterprises (SMEs) with more loans or debt rescheduling. 
If I were a shareholder of KBank and SCB, I can’t say I would be too pleased with the banks. But I would also be unhappy if I was borrowing from other banks. 
Once the banks had gained a lower financial cost from the BOT’s policy-rate cut, which is implied in the one-day repurchase rate, they seemingly looked over their customers to pass on the cost push (downward trend) to them. 
“Money”, in principle, is not different from other products and services such as oil fuel, electricity, and transport fees in that the prices could move up and down in response to costs. When the cost is high, the price is high. But when the cost is low, the price should be low too. 
The Thai banking sector has been one of most consistent outperforming sectors, with high profit growth despite the country’s sluggish economy where small and medium enterprises with a less competitive edge – in particular access to liquidity – are normally hit first. 
In the last 10 years, the Thai banking sector has recorded a combined net profit of Bt1.24 trillion, at an average of Bt124 billion a year, with a net interest margin of 2.84 per cent, according to an article posted on the ThaiPublica website. In addition, the banking sector (the eight listed banks) still enjoyed a combined net profit of Bt47.65 billion in the first quarter, up 0.16 per cent year on year and 5.2 per cent quarter on quarter, said a KGI Securities (Thailand) research.
They are obviously doing well. Doesn’t it also explain the situation where the banks are charging an exorbitant price for their products? 
Is it fair for the banks to enjoy a high spread on interest rates, which mostly translates into a big boost in their revenue, while the customers bear the high cost of loan interest rates?
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