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Suchart: Banking lacks competition
Market blamed for high rate spreads
Bangkok Post – 13 November 2008
WICHIT CHANTANUSORNSIRI
Competition in the banking sector remains weak, resulting in high interest rate spreads that hurt depositors and borrowers alike, according to Finance Minister Suchart Thada-Thamrongvech.
Dr Suchart, speaking to members of the House finance and banking committee, said competition in the Thai banking sector was considerably softer than in developed markets.
Weak competition in turn resulted in higher profits for banks.
Average minimum loan rates for the largest banks stand at around 7.5%, compared with savings deposit rates of just 0.75%.
"And even with prime lending rates at 7.5%, banks aren't really that eager to lend, as they need to set aside reserves to cover their loans and they aren't confident about whether loans will turn bad in the future or not," Dr Suchart said.
"On the other hand, if they lend in the repurchase market, you can receive 3.75% with no risk or need to set aside reserves. And they still can profit from the spread against deposit rates."
Dr Suchart repeated his position that the Bank of Thailand should cut its one-day policy rate to help boost market liquidity, push banks to extend loans and reduce costs for the private sector.
"Once lending resumes, sentiment will turn around, which in turn will help revive the economy and employment," the minister said.
Bank lending over the past nine months of the year has grown at a double-digit pace, thanks in part to higher working capital demand from companies to cover rising raw material and commodities costs.
But the global credit crunch and recession fears have led many banks to tighten their lending standards and cut credit lines for fear of declining asset quality.
Most analysts expect the Bank of Thailand to cut the one-day policy rate, now at 3.75%, by a quarter to a half-point on Dec 3, the last scheduled meeting of the year for the Monetary Policy Committee.
Atchana Waiquamdee, a central bank deputy governor, said the MPC was ready to adjust interest rates to help the economy.
"Right now, the concern is definitely more on economic growth than on inflation," she said.
Dr Suchart added that further baht depreciation would also help support the country's farm sector and exporters.
Every one baht depreciation in exchange rates against the dollar meant added revenues of 170 billion baht, he said.
Dr Suchart said the 100-billion-baht supplementary budget would help ease the impact of the global crisis on the public.
The added spending, which will push the 2009 fiscal budget to 1.935 trillion baht with a estimated deficit of 349 billion, will be allocated to new infrastructure projects and social welfare schemes for the poor and elderly.
Civil service salaries could also be increased through the added budget. Dr Suchart said authorities were considering a base salary increase of 6%, or a second option raising salaries 3% plus a one-time bonus of another 3%.
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