Siam City Securities reported last week that banks had reduced their three- to 24-month deposit rates by 25 to 150 basis points, while their minimum lending rate (MLR) was cut 0.25 percentage point. This affected their margin temporarily.

Reduction in MLR will affect banks' revenue immediately, while the impact of a reduction in fixed deposit rates will be delayed, depending on the repricing of deposit maturities.

However, banks are expected to cut their rates further. The impact will be different, depending on each institution's asset structure and loan portfolio.

BBL and SCIB would be the banks least affected by lower interest rates. Their floating-rate loans are as low as 65 per cent of their portfolio, the smallest in the industry.

Fixed deposit rates with less than one-year maturity represent 57 per cent of their total deposits, 48 per cent of which will be repriced this year. This will positively affect the two banks' net interest margins.

BBL and SCIB's lending-to-deposit ratio is as low as 78 per cent. The cost savings from deposit-rate reduction affect their revenue much more than lower interest income due to MLR reduction with the lowering of both lending and deposit rates.

BBL will be the least affected by future rate reductions. In the first quarter, there was no MLR reduction by BBL, while the bank continually reduced its deposit rates. This will positively affect its margin.

The bank's capital adequacy ratio is 14.6 per cent, of which 12.5 per cent is tier-1 capital. The low loan-to-deposit ratio leaves room for BBL to expand its loans once the economy turns around.

An analyst from Ayudhya Securities said most banks had been reducing deposit rates since early this year. In the first three months, fixed deposit rates with more than 12 months maturity fell by about one percentage point on average, while deposit rates of six-12 months fell 0.63 percentage point. The three- and six-month rates declined by 0.5 percentage point.

The MLR at banks' was cut in early March by only 25 basis points, to stand at 7.5 per cent for Kasikornbank, Siam Commercial Bank and Krung Thai Bank, and 7.75 per cent for SCIB. BBL has not adjusted its MLR, which has been at 7.5 per cent since late last year.

TMB Bank's MLR remains unchanged at 8 per cent.

Ayudhya Securities provides three scenarios of rate reduction.

First, if MLR, fixed deposit rates and money market rates are cut 0.5 percentage point, the net interest income before taxation of all banks will fall, with Krung Thai Bank, Siam Commercial Bank and Kasikornbank being affected the most.

Second, if the fixed deposit rate is cut by 1.25 percentage points - that is, by more than an MLR reduction of 0.75 percentage point, while the money market rate is cut 0.5 percentage point - the net interest margins of all banks will rise, with BBL, SCIB and TMB benefiting the most.

Third, if the fixed rate falls by one percentage point, MLR is cut 0.75 percentage point and the money market rate by 0.5 percentage point, this would be the best-case scenario - with SCIB benefiting the most.

Overall, BBL will benefit the most among large-sized banks with its low loan-to-deposit ratio of 78 per cent.

Siriporn Chanjindamanee

The Nation