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Rate Cut

SCB, KBank take lead in rate cut

Siam Commercial Bank (SCB) and Kasikornbank have taken the lead in lowering interest rates after the Bank of Thailand's policy-rate cut on Wednesday, which indicated worsening conditions ahead.

Brokerage houses took the view that the reductions would not affect the banks' performances, in light of a possible slowdown in loan demand.

The central bank's Monetary Policy Committee (MPC) trimmed the rate by 25 basis points to 2.00 per cent.

SCB announced yesterday that it would cut lending and deposit rates by 0.125 percentage point. KBank announced a cut by 0.13 percentage point for both lending and deposit rates, which will lower its minimum lending rate to 6.75 per cent and savings rate to 0.5 per cent. The rate cuts will take effect tomorrow.

KBank president Predee Daochai said it cut the rates to lower its customers' borrowing costs and in response to the MPC's action to help prop up the economy.

An analyst with Maybank Kim Eng Securities (Thailand) said it was possible to see drops in other commercial banks' interest rates to encourage loan growth, for which there were signs of a slowdown. The house expects loan growth in 2014 of 8 per cent, the lowest in five years.

Thailand has witnessed double-digit loan growth in the past years, thanks to consumption-boosting policies of the government. Without such policies or a permanent government to hold the economic reins, domestic investment and consumption have been on the decline.

Moody's Investors Service noted in its research yesterday that cyclical pressure on Thai banks was anticipated, driven by a challenging macroeconomic environment and the continued political crisis. This situation is limiting the ability of the government to disburse planned funds for infrastructure development, which had been expected to be a significant contributor to the Thai economy this year.

"We expect such an environment to materially slow credit growth and lead to pockets of asset quality deterioration. Nevertheless, the banks' capacity to sustain such pressure is robust, and our central scenario is that the environment will normalise in the course of the year."

Maybank Kim Eng added that small banks like Tisco Bank, Thanachart Capital and Kiatnakin Bank might benefit from a new round of interest-rate cuts but large banks might lose advantages because of a slight cut in their net interest margins.

DBS Vickers Securities (Thailand) noted that commercial banks were expected to see net profit growth of 13.5 per cent this year. Excluding the Bank of Ayudhya's gain from its merger, the growth figure is projected at 11.2 per cent for 2014, it said.

Despite lower interest rates, it does not expect a sudden boost in spending or house purchases given low confidence. Any positive impact from the rate cut would be seen in the latter half. If the political deadlock ends in the first half of this year, consumption and investment are expected to make a fast recovery in the second half, DBS said.


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