However, this is expected to be an acceptable rate for borrowers, said senior executive vice president Deja Tulananda.

Earlier, bank president Chartsiri Sophonpanich forecast the MLR would peak at 8.5 per cent this year.

Deja expects the Bank of Thailand to raise its policy signal rate at the next meeting of its Monetary Policy Committee, following the latest move by the US Federal Reserve, which increased its key rate by 25 basis points to 5 per cent yesterday.

"Three- to six-month fixed-deposit rates may increase to 6-6.5 per cent, then the savings rate would increase to narrow the gap. But it is too early to predict when the savings rate should be raised. The bank must consider the country's economic environment first," he said.

But Deja said once short-term fixed-deposit rates climb to 6.5 per cent, the bank's profitability would be affected.

According to Khunying Jada Wattanasiritham, president and CEO of Siam Commercial Bank, the central bank is likely to follow the US Fed in a rate hike.

Currently, the MLR of large banks is 7.5 per cent, the same as the US prime rate. Therefore, it is highly likely the domestic rate will be raised, she said.

"Our three-month fixed-deposit rate might be raised by another 25 to 50 basis points, while the MLR would be increased to a peak of 8.5 per cent this year," Jada said.

"With the higher financial cost for debtors, which is the bank's key concern, we closely monitor them on a monthly or weekly basis. Moreover, the bank also checks all of our business targets, including lending growth, incomes both in interest and fees, as well as our interest spread target," she said.

Jada said the debt-repayment ability of the bank's borrowers had not taken a turn for the worse. Signals of their debt-servicing ability normally lag slightly behind a slowdown in lending, but in the first four months of the year, SCB achieved its targets both in terms of lending and net profit.

Subhak Siwaraksa, CEO of TMB Bank, said any rate change would take account of movement in the central bank's policy signal rate.

"Market rates stand at quite a high level right now. But if the R/P rate [14-day repurchase rate] is to be raised again, it would finally affect bank rates," he said.

Subhak said although there is still political uncertainty, TMB had maintained its loan growth target at 8 to 9 per cent, projecting new lending of Bt50 billion for the year.

In the first quarter, it recorded lending growth of Bt4 billion-Bt5 billion - against Bt1 billion-Bt2 billion in the same period a year ago.

Somruedi Banchongduang

The Nation