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Banks compete for deposits as liquidity tightens

Commercial banks witnessed fiercer competition for deposits in line with huge loan demand, as lending expanded 14.2 per cent in the second quarter against 10.1 per cent year-on-year growth of deposits, according to the Bank of Thailand.

Still, loan demand could slow in the second half, without the need for flood-related renovation projects and massive overseas investment by Thai companies, remarked Navaporn Maharakaka, senior director of the central bank's Financial Institution Strategy Division. In the first quarter, Thai companies invested US$3.5 billion (Bt110 billion) overseas.

The amount Thailand direct investment (TDI) in the first quarter was huge, compared to $11.6 billion throughout 2011 and $7 billion in 2010. During 2008 and 2009, TDI was as low as $5.5 billion and $5.7 billion. This also boosted the amount of Thai banks’ foreign-currency loans in the period: from Bt477.5 billion in 2008 to Bt790.4 billion in 2011. In the first quarter of 2012 alone, the sum was tuned at Bt805.6 billion.

Massive loan demand sparked needs for deposits. Banks launched special programmes to draw deposits and issue bills of exchange (B/E). In the second quarter, commercial banks' ratio of loans to deposits/bills of exchange rose to 92.4 per cent, compared with 90.2 per cent in the first quarter.

In the second quarter, banks' lending expanded by 14.2 per cent over the same period last year and 3.8 per cent from the previous quarter. However, their deposit and B/E base expanded by only 10.1 per cent year on year and 1.5 per cent quarter on quarter.

In the second quarter, consumer loans expanded by 16.9 per cent year on year, while business lending grew by 13.1 per cent.

"What we witnessed in the second quarter was fiercer competition, and mostly they are competing in terms of deposits," Navaporn said.

She asserted that it was possible that loan growth in the second half would slow in light of a worsening global economic outlook.

So far, Thai banks have been financially strong. Despite higher loan extension, their aggregate non-performing loans dropped by Bt7.2 billion to Bt260 billion at the end of the second quarter. While gross NPLs accounted for 2.5 per cent of outstanding loans, net NPLs were at 1.2 per cent.

Delinquent loans also dropped to 1.9 per cent, against 2 per cent in the first quarter, showing the absence of negative impacts on Thai businesses from the euro crisis.

"Growing loans in a quality way reduced the NPLs and increased interest income for banks. Raising funds through financial papers also raised the capital fund, ready to support economic activities and cushion global uncertainties. Banks also set aside more loan-loss reserves," he said.

In the second quarter, commercial banks showed combined net profit of Bt49.1 billion, up 20.7 per cent from the previous quarter.


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