So far this year, commercial banks have increased their MLRs by 75 basis points, raising rates in January and March.

"If minimum lending rates increase more than 100 basis points this year, bank customers are likely to delay their decisions on loan borrowing," said TMB Bank CEO Subhak Siwaraksa.

However, except for loans that go bad, the impact may not be serious, because borrowers have adjusted themselves since last year to face a domestic rate increase.

Subhak forecast that the country's policy signal rate would be raised another two times this year. This is under an assumption that the US Federal Reserve will also increase its rate twice.

Kasikornbank president Prasarn Trairatvorakul said borrowers would be hurt if the MLR increased to surpass the nominal gross domestic product (GDP) at 8-8.5 per cent. Nominal GDP is real GDP plus inflation.

Charlotte Donavanik, senior vice president of Bank of Ayudhya, recently said that the prime lending rate was likely to reach 8 per cent by the third quarter of this year due to tougher competition in the banking industry.

 Currently, the MLR of large banks stands at 7.25 per cent.

Kasikornbank forecasts the country's GDP growth rate for this year at 4-4.5 per cent, while expecting the headline inflation rate to be 4 per cent.

Prasarn said the degree of the impact on bank customers will differ among customers, as they have differences in financial status and loan conditions.

 Some may slow their investments and loan borrowing while others may be hit in their ability to repay debt.

Kasikorn Research Centre projected private investment growth for this year at 7.5-10.3 per cent, down from 10.7 per cent last year. This will be caused by interest-rate and oil-price hikes. The research house forecasts that the country's 14-day repurchase rate will be raised to 4.50-5 per cent by the middle of the year, compared to the current 4.5 per cent.

Separately, Siam Commercial Bank executive vice president Veerathai Santiprabhob said the interest rate would not affect private investment much because borrowers have already absorbed the factor. But the country's overall environment, particularly the political situation, will be a key factor that will affect private sector sentiment and the country's investment in infrastructure mega-projects.

"Let's say a debtor borrows Bt10 million. He or she must pay an additional interest of Bt100,000, if the lending rate rises by 1 per cent. It would not be too serious a burden," Veerathai said.

Somruedi Banchongduang

The Nation