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4 Jan 2019

Financial Institutions

Fixed deposit rate hike is in line with the BOT signal on policy rate increase and the banks’s attempt to maintain their market shares. (Current Issue No.2952)


         The uptrend of interest rate is ultimately evident by commercial banks's decisions to raise their interest rates by starting from deposit rates. Their fixed-deposit rates for three, six, 12, 24 and 36 months are raised by 25 basis points. Hence, the fixed deposit rates of some major commercial banks moved up to a range of 1.18-1.85 percent annually. However, the commercial banks's lending rates namely, minimum loan rate (MLR), minimum overdraft rate (MOR) and minimum retail rate (MRR), remain unchanged.

           ​KResearch holds the view that some commercial banks's decisions to increase only deposit rates in spite of high liquidity in the banking system reflects the commercial bank's role in following the policy rate hike by the Bank of Thailand's Monetary Policy Committee on December 19, 2018.  If other commercial banks follow suit by increasing their fixed deposit rates, the commercial banks's deposit shares should not be significantly changed.

            KResearch estimates that the overall outstanding fixed deposits (for individual customers with an account of not more than THB5 million) currently totals THB1.5 trillion. Commercial banks will gradually realize an increasing cost from this round of interest rate increase, especially for three-month fixed deposits, which account for around 20 percent of the total fixed deposits of individuals with an account of not more than THB5 million. Regarding the impact from this round of interest rate increase (based on a scenario that fixed deposit rates of every commercial bank have similarly increased), the cost incurred from additional interest rate payment would be around THB1 billion or around 0.55 percent of the overall net profits of all commercial banks registered in Thailand this year.

            The rise of the lending rate may follow at an appropriate time. KResearch maintains our view that the timing of the prospective lending rate hike by commercial banks will be conditional upon economic recovery, the customers's demand for loans and their debt service ability as well as the commercial banks's cost burden incurred from allowance for doubtful accounts and the assessment of the actual impact from this round of fixed deposit rate increase.

Financial Institutions