THANACHART BANK, the largest auto-loan provider by portfolio, plans to raise the interest rates for its time-deposit products and increase their duration from the current 18 months next quarter as part of the bank’s effort to manage funding costs ahead of the upward trend of interest rates.
Even though domestic car sales during the past three years have been slow, auto-loan providers have still enjoyed a healthy margin as they have been able to manage funding costs thanks to prolonged low interest rates, while the interest they charged borrowers was fixed.
However, these lenders were forced to rethink their funding-cost management after the US Federal Reserve raised its benchmark rate last month, amid predictions of further increases this year, which will spark a trend of rising interest rates globally.
“The timing might not be right to mobilise funds from debentures because bond yields have jumped quite a bit after Donald Trump won the US presidential election. Deposits will still be our main source of funds, but the interest rates for deposit accounts should be increased a little to retain liquidity,” said Anuwat Luengtaweekul, TBank’s chief financial officer.
He believes small and medium-sized banks will increase rates for their time deposits before large banks do, and he said TBank planned to do so in the second quarter.
The bank acknowledges that the spread between its lending and deposit rates will get smaller. During the first nine months of 2016, the spread was 3.99 per cent, up from 3.59 per cent in the same period of 2015.
To offset falling margins and maintain profitability, TBank will offer special interest rates for fixed 20-month and 24-month deposit products. The longer terms, up from the 18 months of the similar products in offers currently, will better match auto-loan instalment plans, he said.
Anuwat explained that even though auto loans normally have five-year repayment terms, the average repayment duration is three years, so a fixed 24-month deposit product is suitable.
Time deposits at TBank account for 38 per cent of the total deposit products and current and savings deposits account for 45 per cent.
Moreover, the bank will try to expand lending volumes to offset the decline in margin, after witnessing a decline in auto lending for two years.
Auto loans account for half of the bank’s total loan portfolio. In the first nine moths of 2016, total loans were Bt679.15 billion, down from Bt713.46 billion in 2015.
Anuwat said the bank had streamlined its approval procedure for retail lending and expected this sector, especially housing loans, to help enhance TBank’s overall loan growth.
While the bank anticipates a return to positive loan growth this year, it does not have a precise estimate yet, he said. That will be announced by the bank’s chief executive officer soon.