Signals from the meeting of the Bank of Thailand’s Monetary Policy Committee (MPC) in June 2022 indicate that the time is approaching for Thailand to raise its policy rate. When coupled with high inflationary pressures, the policy rate is expected to increase for the remainder of 2022 to early 2023. This means that the timing and patterns of rate hikes will directly affect the trend of net interest margin (NIM) in the Thai banking system, especially in 2023. Under normal circumstances, the simultaneous raising of fixed deposit rates and lending rates would have a positive impact on commercial banks’ NIM, as approximately 55-70% of total loans are based on floating interest rates. Commercial banks will benefit immediately within a quarter from raising standard loan interest rates such as the minimum overdraft rate (MOR), the minimum loan rate (MLR) and the minimum retail rate (MRR). Although the fixed deposits currently account for 25% of total deposits, commercial banks will gradually recognize the additional costs after the current deposits become mature in the next 3 months, 6 months and 12 months.
However, given the high level of uncertainty surrounding the current economic recovery, KResearch expects to see an increase in fixed deposit rates first (or soon after the policy rate hike), while the standard loan interest rate hike may be postponed to assist customers. According to the assessment of the preliminary impact on the net interest margin (NIM) of the Thai commercial banking system in the event that the standard loan rate hikes are postponed, KResearch views that the impact on the NIM will be evident in 2023 in the event that the standard loan interest rates are postponed by 3-6 months, as the cost of fixed deposits will be gradually recognized following the increasing deposit interest rates in the third and fourth quarters of 2022. The delay in increasing standard loan interest rates for 3-6 months would narrow the NIM by approximately 0.04-0.06% and 0.08-0.18% in 2022 and 2023 respectively, compared to a normal scenario where the fixed deposit and loan interest rates are raised along with the policy rate.
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