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23 Aug 2010

Financial Markets

July Deposits Fall Faster than Loans despite Changes in Interest (Business Brief No.2914)

Over-month, net loans (after allowances for doubtful accounts) at 14 Thai commercial banks in July declined THB18 billion. Deposits, however, fell even faster by THB35.8 billion. When compared to the levels recorded at the end of 2009, net loans in July rose THB194 billion, whereas deposits declined THB61.6 billion. This reflects dwindling liquidity at Thai commercial banks during 7M10, which was consistent with the declines in liquid assets on their balance sheets during that period.
KResearch is of view, however, that the overall decline in banking liquidity points to steady growth momentum within the Thai economy. Despite slowing loan growth in July 2010 compared to June, the deceleration should only be short-term and not have any significant effect on overall lending that is expected to grow well this year (the latest figures show that net loans as of July 2010 grew 6.85 percent YoY). Over the remainder of 2010, it is expected that competition within the loan market will rise, particularly toward the year-end when commercial banks will increase their efforts to extend lending to meet double-digit growth targets, although bank customers' debt servicing ability may be affected somewhat by an upswing in interest rates. Meanwhile, loans that should exhibit promising growth this year are those linked to the economic recoveries here and abroad, particularly business loans that should do well due to easing domestic political risk and benefits from government's stimulus efforts.

Regarding deposits, KResearch holds the view that bank deposits will recover, though to a lesser extent than that of loans, due to possible increases in domestic interest rates, plus continual launches of special deposit products to maintain their customers amid heightened competition foreseen from other deposit alternatives, e.g., mutual funds and bills of exchange. With respect to that, it is expected that banking liquidity, though it may decline this year, will be sufficient to facilitate economic activities throughout 2010.

Financial Markets