• 
• 
• 

The central bank's rate cuts have failed to boost domestic consumption as much as the government had hoped. The government urged the banks to cut the rate to promote investment and to improve financial liquidity for business operators, especially small- to medium-sized companies.

Although the Bank of Thailand affirmed it was easing the monetary policy by cutting the policy rate by another 75 basis points to 2 per cent last week, commercial banks were slow to follow. Some responded by cutting lending and deposit rates by 25 basis points and up to 50 basis points, respectively. On Tuesday, Kasikorn Bank, for instance, reduced all lending-rate benchmarks by 25 basis points. KBank's minimum lending rate was reduced to 6.5 per cent, while its minimum overdraft rate was cut to 6.75 per cent. The bank's minimum retail rate was cut to 7 per cent. By comparison, the bank's three-month deposit rate was down to 1.0 to 1.25 per cent, while the six-month deposit rate fell to 1.15 to 1.25 per cent. Bangkok Bank's MLR, MOR and MRR were cut to 6.50 per cent, 6.75 per cent and 7.0 per cent, respectively. By comparison, its three-month deposit rate was cut to 1.25 to 1.50 per cent from 1.50 to 1.75 per cent, while the six-month deposit rate was cut to 1.50 per cent from 1.75 per cent. The average spread of the rates is still around 4 percentage points.

In short, the commercial banks continue to enjoy high profits from the wide spread. These banks may argue that they have always maintained a wide difference between the saving and lending rates in the past. Of course, the banks may want to maintain a big margin between the saving and lending rates during the financial crisis because they have to be prepared for possible non-performing loans, as Thailand experienced in 1997.

However, the current economic situation is different. The severity of the problem is less than what we saw 10 years ago. Besides, if the banks continue to maintain the high lending rate, they may unfortunately play a role in fuelling the crisis. A number of business operators will not be able to sustain their operations if they have to endure high borrowing rates. In addition, the performance of the commercial banks in the fourth quarter of last year shows that they should have some room to further cut lending rates.

The commercial banks should not act selfishly by enjoying this high spread while most of their customers are suffering from the liquidity crisis. The public will not have any sympathy for these banks if the government has to seek public funds to help rehabilitate troubled financial institutions in the future.