"Car loan rates will be reduced only slightly because the margin between deposit and lending rates is quite thin right now," said Bundit Cheevadhanarak, senior executive vice president of Thanachat Bank.

He said current tough market competition, particularly in pricing, had led to the narrow margin. If auto loan rates were to fall significantly, the profitability of the loan providers would be reduced.

Thanachart is charging a new flat rate of 3.7 per cent for its auto loans.

Its position is similar to that of Kiatnakin Bank, another key player in the auto loan business.

Kiatnakin Bank president Tawatchai Sudtikitpisan said on Friday that pricing would not be a key factor in competition in the auto loan business this year, as no player could offer customers much of a difference in its rates.

All are facing the same problem of falling domestic demand, he said.

Thanachart aims to increase its net interest margin from the current level of about 3 pre cent by the end of the year.

The bank plans to change its savings deposit-rate structure by offering interest depending on the amount of a deposit. This will take effect next month and will lower Thanachart's interest expenses. The adjustment is expected to boost the bank's savings deposit base from the current 17 per cent to 25 per cent by year-end.

Thanachart's targeted auto-loan growth for this year is 6 per cent, down from 33 per cent last year, because of its large base and larger market rivals.

However, new lending in the industry overall is expected to grow by only 2-3 per cent, in proportion to the prospective growth in the country's car sales, Bundit added.

Though the bank's loan-growth rate will significantly decrease, Thanachart believes it will maintain top position both in the new and used-car markets, with shares of 28 per cent and 22 per cent, respectively.

Kiatnakin's executive vice president of treasury and funding, Visut Sattabudsutthi, said on Friday that the trend of falling interest rates would cause his bank's funding costs to fall.

Fortunately, he said, Kiatnakin had shifted from long-term liabilities of one to four years to short-term ones of six to nine months, of which Bt30 billion will be due this year. Thus, the bank will benefit from falling rates this year.

Commercial banks are expected to reduce interest rates by about 50 basis points this year.

Somruedi Banchongduang

 The Nation