"Some customers ask for the bank's loans to refinance their existing debts with other banks, partly because Krung Thai Bank's rates are lower. But the bank won't approve loans for this purpose because it isn't real investment," president Apisak Tantivorawong said last week.

The country's largest state-owned bank shaved a full 50 basis points off its minimum lending rate (MLR) during the recent round of rate-cutting, while other big banks limited their reductions to 25 basis points. Its MLR stands at 7 per cent, while the other five large banks are quoting 7.25-7.50 per cent.

Apisak said the bank's deep rate cut had benefited its customers and improved investor sentiment. The move should have increased the capability of borrowers to service their debts and helped the bank to gain more quality customers.

In principle, with more attractive loan conditions than other banks, Krung Thai Bank should also have the pick of good customers. The bank expects to see this develop over the next three months.

The current gloomy economic environment has put a damper on loan expansion. The bank has shifted its excess liquidity to bonds and derivatives as well as international instruments. This would help offset deposit interest expenses and also boost non-interest income.

Rival banks are not concerned about the gap in MLRs.

Prasarn Trairatvorakul, president of Kasikornbank, said that although its MLR is higher than Krung Thai Bank's, its customer base remained intact.

The MLR is just a reference, and it depends on how big a discount the bank offers to its customers. Pricing is not the only key factor for borrowers as they also consider banking services and other conditions, he said.

Chansak Fuangfu, senior executive vice president of Bangkok Bank, said his bank believed its loan rates were still competitive. Although its MLR is higher than Krung Thai Bank's, the actual rate charged depends on negotiations with customers.

The rate is not fixed at the MLR of 7.25 per cent and prime customers would receive better rates.

He said the bank's wholesale business was still doing well, although new investment is slowing down because customers are waiting for a clearer picture of both the political and economic situations. Investors are also monitoring interest rates and foreign-exchange rates. The new draft constitution is another key issue.

Kasikornbank's Prasarn sees the Monetary Policy Committee possibly reducing its one-day repurchase rate at this month's meeting. The policy signal rate should eventually sink to 3 per cent from 4.5 per cent presently, he said.

Somruedi Banchongduang

The Nation