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Large banks are preparing to raise interest rates to secure their deposit bases after Bangkok Bank (BBL) led the market last week by raising its deposit and lending rates.

BBL announced a fixed-rate hike of 0.125 per cent to 1 per cent, while its lending rates were to be raised by 0.375 per cent, with effect from yesterday.

Kasikornbank senior vice president, consumer loans product management and marketing department, Chatchai Payuhana-veechai said that his bank would follow BBL in increasing both deposit and loan interest rates.

"Right now we still have liquidity," he said. "Our L/D [loan per deposit ratio] is at 90 per cent, while the average L/D of the market is also at 90 per cent. Earlier, many banks competed for funding and BBL needed to protect its deposits. However, increasing the deposit interest rate also increases the cost of funds and hence it needed to adjust the loan interest rate too," said Chatchai.

Krung Thai Bank, the largest state-owned bank, said it is watching the rate movement.

Krung Thai Bank president Apisak Tantivorawong said the bank needs to view the market. Interest rate adjustment depends on supply and demand in the market and the decision is up to each bank's financial situation.

"When the other banks start adjusting their interest rate, we would also need to consider whether it would have an impact on our operations," said Apisak.

TMB Bank announced that it would increase its interest rates on fixed deposit accounts. On a minimum deposit of Bt100,000, the rates on 48-month and 60-month accounts would rise from 3.25 per cent to 3.75 per cent and 3.25 per cent to 4 per cent, respectively. The new rates are offered to general and corporate customers. The rates for government officials and mutual fund and state enterprise customers for the two deposits are hiked from 3 per cent to 3.5 per cent and from 3 per cent to 3.75 per cent respectively.

TMB also increased the bill of exchange (B/E) for a minimum amount of Bt500,000. The six-month B/E interest rate would be increased to 3.25 per cent from 3.15 per cent and the 12-month B/E interest rate to 3.50 per cent from 3.30 per cent.

The announcement will take effect on June 3.

An analysis report from Siam Commercial Bank Securities said the interest rate raise by BBL reflected:

l Its anticipation of continued good loan growth

l Its desire to compete with other banks that have issued subordinated debentures and initiated special deposit packages

l Its improvement in L/D ratio in the first four months of the year from 81 per cent at the end of 2007 to 85 per cent in April on the strongest year-to-date loan growth but slowest deposit growth of the big banks.

Bualuang Securities said that it expected other banks to follow suit as most commercial banks have high L/D ratios of close to 100 per cent. Thus, lending and time deposit rates should increase, starting in June.