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25 May 2020

Financial Institutions

Policy Rate Cut Pressures NIM Amid Numerous Assistance Measures for Customers (Business Brief No.3867)

​The Monetary Policy Committee's decision to trim its policy rate on May 20, 2020 has prompted commercial banks in Thailand to cut their interest rates once again a few days after that. Large commercial banks have concurrently announced to reduce their minimum loan rates (MLR), minimum retail rates (MRR) and minimum overdraft rates (MOR). The MLR reduction may help ease financial burden of entrepreneurs and consumers, including those applying for new loans and existing borrowers, who are able to repay debt. It is also consistent with financial institutions' assistance measures for SMEs and retail customers. On the other hand, the MLR cut may pressure operating results of commercial banks, which are poised to cope with more challenges during 2Q20.

            We at KResearch have assessed that financial institutions' assistance measures for clients will likely cause loan growth to stay at a level of approximately 5.0-6.0 percent in 2Q20, against the 4.0 percent growth reported for 1Q20. Nevertheless, financial institutions may not be able to fully enjoy returns from the extension of such loans because they are intended to assist customers via interest rate cuts/suspension while interest rates for new loans are substantially low. In addition, we expect that the impact of current economic conditions may cause non-performing loans in 2Q20 to increase over that reported for 1Q20.

Another issue that must be closely monitored is debt that financial institutions have helped restructure. It is expected such debt will hinge on the recovery of economic conditions and specific events of each business because such factors will determine the quality of such debt and provision burden for bad debt of commercial banks in the future.  

Although commercial banks will experience a major challenge in maintaining 2Q20 operating results amid economic problems and assistance measures for customers, the Thai commercial banking system remains robust with high capital funds and reserves, which are sufficient to cope with downside risks, going forward.  


Financial Institutions