Banks’ interest rate cuts impact their NIMs, but help reduce debtors’ costs (Current Issue No.3580 Full Ed.)

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Following the Monetary Policy Committee’s (MPC) policy rate cut in late April 2025, several major commercial banks in the D-SIBs group have gradually begun to reduce their lending rates, including minimum retail rate (MRR), minimum loan rate (MLR), and minimum overdraft rate (MOR). This round of rate adjustments includes both deposit and lending rate cuts, with many banks also lowering their interest rates on certain regular fixed deposits around the same time.
Looking back at the MPC’s three previous rate cuts, there was a gradual transmission to interest rates and net interest margins (NIMs) across the Thai banking system. While the rate reductions have lowered deposit mobilization costs on one hand, they have simultaneously pressured lending yields downward, particularly during the period when new loan growth remains constrained by weak economic activity signals.
Taking into account the combined effects of the rate cuts by commercial banks during April-May 2025, KResearch expects the Thai banking system's NIM to gradually drop to 2.83 percent in 2Q25 and decline further in 2H25. The primary beneficiaries of this interest rate cut may be business loan and retail debtors who will enter the rate adjustment period. KResearch projects that business loans, home loans, and other secured personal loans, which are likely to benefit from lending rate cuts before the end of 2025, will account for approximately 56.6 percent of total loans in the Thai banking system.

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