It said the difference between the banks' returns from current assets and the cost of their deposits would narrow down after the central bank's key policy rate passes its peak, and this will whittle down their appetite for deposits.

The research house said banks were able to compete for deposits because interest costs remain below returns from current assets, consisting of local and overseas short-term investments and securities.

Based on 2005 financial statements from the country's four largest banks, their returns from current assets were 3.4 per cent, compared with an average cost of deposits of 0.9 per cent. This allows them to enjoy a wide spread between income and costs without having to rely on income generated from loan extension.

"From now to the middle of 2006, the market estimates that the 14-day repurchase rate and the US Fed Funds rate will be jacked-up by a further 25 to 50 basis points. Based on this assumption, returns from banks' current assets will increase and they [overall] can afford an additional Bt4.1 billion to Bt8.2 billion per year for the interest burden from special interest rate accounts," the research centre said.

Thai banks are jumping on the bandwagon to offer special accounts to attract deposits. Krung Thai Bank spearheaded the marketing drive by launching a nine-month time-deposit account paying 4.25 per cent per annum. Bangkok Bank countered with a 10-month fixed-deposit account offering 5.125 per cent.

The special deposit accounts are aimed at maintaining the banks' deposit bases as they move to increase service fees, including for money transfers, as well as attracting funds with which to extend loans.

Although the banks offer relatively high rates for their special deposit accounts, their interest payment burden remains lower than if they raised interest rates for general time-deposit accounts because they limit the period for the special accounts, the centre said.