April Net Loans Exhibited Over-Month Growth Led by Business and Retail Loans (Business Brief No.3744)

​          In April 2018, net loans overall increased 0.61 percent MoM (THB67.8 billion), or 4.81 percent YoY to THB11.14 trillion, as expected. The increase was seen at almost all banks, led chiefly by business loans and retail loans (which include home, hire-purchase and unsecured personal loans). Meanwhile, deposits hit a four-month high of THB12.36 trillion, rising 0.99 percent MoM (THB121 billion), or 6.28 percent YoY. The surge was driven mainly by growing current and savings deposits at large banks, and partly by higher special fixed deposits as part of the efforts by banks to mobilize more funds in the medium term. As a result, liquidity at banks increased as evidenced by the ratio of net loan to deposit, plus issued debt and borrowing (LTD+ borrowing ratio) that dropped to 85.51 percent in April, from 85.77 percent in March and the liquid to total asset ratio that rose to 22.45 percent in April, over 22.25 percent in March.

            Looking into 2Q18, it is expected that new factors, in particular, robust export performance, which will likely lead many agencies to revise upward their 2018 Thai GDP growth forecasts, and the enforcement of the Eastern Economic Corridor Act will help bolster demand for business loans further. Currently, business loans help drive overall loans in the market. Retail loans will like bounce back due partly to a low base of 2017 and increased demand for new loans for purchases of durable assets, including vehicles and​ newly built/ready to move in homes. Meanwhile, it is expected that large banks will begin to re-enter the home refinance business. Heightened competition is foreseen in the unsecured personal loan market (credit card loans and personal loans under the Bank of Thailand's supervision) as banks will likely introduce campaigns, aimed at expanding new customer bases and stimulating existing customers to use their credit limits. Due to a high base of 4Q18, we at KResearch, however, maintain our loan growth forecast for 2018 at 4.8 percent.

            Regarding bank deposits in 2Q18, it is expected that banks will introduce longer term of special fixed deposits, i.e. 14 and 15 months instead of 12 months as before, to cope with anticipated rises in the domestic policy rates. The volumes of current and savings deposits are set to increase in line with deposit cost management of banks and due to a narrower spread between the deposit interest rate after tax deduction and the savings deposit interest rate. Meanwhile, banks will likely be able to maintain appropriate costs and sufficient liquidity, which should help them sustain net interest margin amid declines in non-interest income as a result of the exemption of online financial transaction fees.