The loan-to-deposit ratio of Thailand's banking system plunged to its lowest level in nearly two and a half years in April, due mainly to a rapid increase in bank deposits and slower lending growth, reports the Bank of Thailand (BOT).

The ratio stood at 86.41 in April, down from 87.63 in March and 89.9 the previous April. It was the lowest figure since 85.59 in November 2003.

The central bank said the fall followed a series of deposit-rate hikes by banks seeking to attract more deposits at a time they were making new loans at a slower

pace, in line with the economic slowdown.

In March and April, commercial banks offered aggressive special deposit packages with attractive interest rates in a bid to attract new depositors. For April, large banks were offering 4 per cent for 12-month fixed deposits, compared with only 1 per cent the previous April. Their minimum lending rate averaged 7.5 per cent, compared with 5.69 per cent in the corresponding period last year.

The BOT said commercial banks made total loans of Bt5.77 trillion in April, slightly down 0.15 per cent from March. But at the same time, deposits grew 1.6 per cent. On a year-on-year basis, loan growth was 8.6 per cent, compared with a 13-per-cent rise in deposits.

During the economic boom prior to the 1997 financial crisis, the loan-to-deposit ratio rose to more than 100 per cent, indicating that demand for loans exceeded the value of deposits. At that time, loan growth was more than 20 per cent.

Currently, loan growth is lower, because investment is being postponed by concerns about political turmoil and the economic slowdown, the latter of which is being caused mainly by soaring oil prices and rising interest rates.

Depositors have also shifted their money from other investment areas, such as the stock and bond market, to bank savings, because of higher interest rates and lower risk.

Investment sentiment in the stock market worsened this week, when foreign investors revised their investment portfolios from Asian countries to the US market.

They are believed to have moved on expectation that US interest rates will rise, after the US Federal Reserve's Ben Beneke delivered a strong speech signalling a crackdown on inflationary pressure by the US central bank.

Anoma Srisukkasem

The Nation