Banks should cut more lending : BOT

She said the banks could cut the lending rates because their cost of deposit interest rates have dropped after fixed deposit interest rates have gradually come due. In addition, falling demand for loans will also fuel competition among creditors, which will lead to lower lending rates to lure customers.

"I hope that banks will consider it in detail [and see] that they are able to lower lending rates," the governor said in a seminar at Money Expo.

Banks have already slightly trimmed lending interest rates in the face of the escalating risk of debtors during the current economic downturn. Their deposit costs have also been fixed in longterm periods.

The economic slowdown has led to increases in risk premium although the lending interest rates have slightly diminished.

Debtors must pay for the rising risk on top of the lending interest rates announced formally by the creditors. As a result, they can take advantage slightly of the lowering rates.

Tarisa said the central bank urged the banks to consider giving loans on a case by case basis, not by sector. They should also bring debtors into the restructuring process if they show signs of weakness in their ability to pay back debts.

The banking system's nonperforming loans (NPLs) have jumped during the economic slowdown. Net NPLs of 3.13.2 per cent were not high, and more than 14 per cent of capital adequacy ratio could cover the bad loans. But the delinquency rate decreased in March compared with the hike in previous months.

The central bank insisted that excess liquidity of more than Bt1 trillion was adequate to serve demand, particularly from the government, which plans to borrow Bt800 billion domestically.

The loan to deposit ratio of 83 per cent has also proved to be sufficient liquidity.

The government's domestic borrowing will not soak up liquidity in the system and discourage the private sector from obtaining loans, thanks to the falling demand for loans.

Moreover, foreign investors continue to bring money into the Kingdom but at a slower pace in accordance with the economic slowdown. Foreign direct investment is in an average range of US$600$700 million (Bt20.7 billion to Bt24.2 billion) per month.

"If the political instability continues, it is possible they will shift their investment base. We have to monitor it closely and pray for stability," she said.

Capital inflows have been evident in the stock market, indicating an improving sign of foreign investors' return, but the capital flows could be volatile.

US and Asian economies should improve, and the effects of the governments' stimulus packages should be clear in the second half of the year. Any surprise in the US banking system could derail the hopedfor global economic recovery, Tarisa said.

The large drop of wealth in the household sector and continuing high unemployment are other negative factors affecting the global economy.

"We have just seen the light at the end of the path due to lowering risk, so capital flows have turned back," she said.