While some banks expressed regret at their need to follow the market, many have, nevertheless, argued that they must remain competitive and hike their rates in order to preserve market share.

The central bank's advice was delivered at a meeting yesterday between the BOT and the Thai Bankers' Association.

BankThai's senior executive vice president Chamnarn Wangtal said later that the central bank had asked the banks to be cautious about their interest rate hikes.

The US Federal Reserve's recent decision to leave its federal fund rate unchanged will reduce pressure on the central bank's policy rate movement, he said.

"There is also some amount of [excess] liquidity in the banking system, so the central bank does not want banks to compete fiercely, because this can affect the cost of funding," Chamnarn said.

However, Siam Commercial Bank president and chief executive Jada Wattanasiritham said BOT Governor MR Pridiyathorn Devakula had merely reminded members of the association that domestic rates have nearly reached their peak and competition in the banking system should be in line with actual economic conditions and liquidity. There have been six rounds of interest rate hikes by commercial banks this year, most of them led by the big players. The rates rose twice in March and the latest increase occurred at the beginning of this month. Bank of Ayudhya president Pongpinit Tejagupta said the rate increases would slow down the economy, affect customers' debt repayment ability and reduce bank lending.

Consumers have lost their confidence in the economy and have reduced their spending, he said. Many banks know they can no longer provide credit, but they still want to grow and expand their market share, and this causes rising excess liquidity.

"There are [now] amounts of [excess] liquidity, but can they compete to lend?" Pongpinit asked. "They can mobilise deposits to bolster their size, but they will have higher costs of funds and rising contributions to the FIDF [Financial Institutions Development Fund], as well as their operating costs."

Pongpinit said the Bank of Ayudhya is trying to slash its costs, realising that interest rates are near their peak. Banks which have offered high and very long-term deposit rates could be hurt, he said, because other banks have started to lower their funding costs.

TMB Bank president Subhak Siwaraksa said he is concerned about the rate hikes, but he must follow suit if Siam Commercial Bank raises its rates.

"We compete with each other and we've tried to adjust ourselves," he said.

Kasikornbank president Prasarn Trairatvorakul said rate increases are part of ordinary competition among banks. His bank's excessive liquidity remains high but it must compete.

Tisco Bank chief executive Pliu Mangkornkanok said his bank has followed the market and its rate moves have not been caused by a lack of liquidity.

Chairman of Thanachart Bank's executive committee, Suphadej Poonpipat, said his bank had also followed the market, despite having excess liquidity of Bt60 billion to Bt70 billion.

However, the banking market rates may be at their peak and may now be stable, he said.

Bangkok Bank president Chartsiri Sophonpanich said his bank had followed market conditions. Its excess liquidity remains high and it has not taken a lead in raising rates.

Anoma Srisukkasem

The Nation