Excess liquidity accounted for 5 per cent of total deposits, indicating that it was sufficient to support the country's loan expansion for a while, the report said.

Banks' assets have largely increased since the beginning of the year but were still lower than for the same period last year. The level of excess liquidity reflected the lower loan-to-deposit ratio of 85 per cent due to a sharp increase in deposits.

Deposit growth rose 11.9 per cent on average in the first five months of the year, triple the 3.8 per cent in the same period last year.

"Higher rates attracted savers back to banks, and capital inflows have also bolstered deposit levels as banks are intermediaries for transactions by foreign investors," it said.

The loan-to-deposit ratio at most small and medium-sized banks was higher than those at bigger banks, whose ratios have weakened since the beginning of the year.

Some banks have borrowed in the repurchase, inter-bank and foreign-exchange markets, but this reflects only a temporary lack of liquidity, not a liquidity squeeze.

"Tighter liquidity in the money market was temporary and due to banks' liquidity management," the report said.

Excess liquidity fell sharply in the second half of last year because the return on liquid domestic and foreign assets rose above the minimum lending rate.

Analysts expect lending and deposit rates to rise by 0.25-0.5 percentage points with savings rates remaining static.

Anoma Srisukkasem

The Nation