BOT wants banks to lower interest spread

[webfact]

BOT wants banks to lower interest spread

By The Nation

 

Bank of Thailand governor Veerathai Santiprabhob says the BOT is not satisfied with the high spread. (File photo)

 

The Thai central bank is pushing banks to narrow the difference between lending and deposit rates in order to make it fairer for retail customers.

 

Bank of Thailand (BOT) Governor Veerathai Santiprabhob said the current interest rate spread -- the difference between the bank’s lending rate and deposit rate -- is about 2.7 to  2.8 per cent.

 

Compared to rate spreads  in the region, the interest rate spread in Thailand is in the middle range -- not too large, or too small.

 

The interest rate spread in Singapore is much lower at 1.5 per cent.

 

Singapore’s banks have fewer branches, are widely adopting electronic services and most of their customers are big businesses, so lending risks are much lower, he said. This allows banks to offer lower lending rates, he said.

 

The BOT is not satisfied with the high spread, he said, adding, the high spread is derived partly from the higher operating costs as banks have to have more branches, he said.

 

Thai banks offer lower lending rates to affluent customers than they do to less affluent customers. Smaller customers also get lower deposit rates from banks as they do not have much bargaining power.

 

One solution is to open the market for non-bank operators to compete in financial services for retail clients. This could ease the financial burden on those who have little bargaining power, he said.

 

Many people use the minimum lending rate minus deposit rate, resulting in an interest rate spread of 6 per cent which is misleading because banks have other operating costs, he noted.

 

The BOT estimates that the real interest rate spread is between 2.7 and 2.8 per cent, he said.

 

The central bank has succeeded in lowering the fee for financial transactions after implementing the electronic transaction system. Earlier, banks did not charge affluent customers but they levied a fee of between Bt25- Bt30 per transaction on small customers. After implementing the electronic payment system, the fee has been cut substantially.

 

However, he admitted that it was more challenging to narrow the interest rate spread since lending to rich customers have lower risks while loans to less-affluent clients have more risks.

 

Naris Sathapholdeja, the head of TMB Analytics, said the net interest margin (NIM) of the Thai banking system was at 2.75 per cent  at the end of the third quarter, compared to 1.93 per cent in Malaysia, 1.88 per cent in Singapore and 2.01 per cent in South Korea.

 

Part of the issue is that Thai banks have loaned more clean loans (no collateral required).

 

Among large banks, Siam Commercial Bank has the highest NIM rate at 3.65 per cent , followed by Krungsri 3.47, Kasikornbank 3.31, Krung Thai Bank 3.08 and Bangkok Bank 2.26 per cent.

 

Source: https://www.nationthailand.com/business/30378874

 

-- © Copyright The Nation Thailand 2019-11-29

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[Srikcir]

it's hard to understand BOT's complaints.

6 hours ago, webfact said:

The Thai central bank is pushing banks to narrow the difference between lending and deposit rates in order to make it fairer for retail customers.

But the difference isn't material

6 hours ago, webfact said:

Compared to rate spreads  in the region, the interest rate spread in Thailand is in the middle range -- not too large, or too small.

As if Singapore is the correct guide

6 hours ago, webfact said:

The interest rate spread in Singapore is much lower at 1.5 per cent.

Thailand has a GDP per capita of $17,900, while in Singapore, the GDP per capita is $93,900. Singapore is an economic "outlier" in comparison. 

6 hours ago, webfact said:

the high spread is derived partly from the higher operating costs as banks have to have more branches

Ever hear of "economy of scale"? The more branches the more costs are spread and thus diluted. Yet, somehow Singapore has a low spread despite so few branches.

6 hours ago, webfact said:

Part of the issue is that Thai banks have loaned more clean loans (no collateral required)

Despite the fact that BOT recently increased collateral requirements for mortgages? So if Thai banks are still making "clean" loans, then they are ignoring BOT's regulations which is a different kind of issue for BOT. As a side note BOT should take issue with the Prayut government that has consistently for more than five years been making "soft" loans and debt forgiveness to the agriculture industry; contributing to higher household debts.

 

In summary, much of what the Governor says doesn't seem fact-based but belief-based.

 

[Bob12345]

4 hours ago, Srikcir said:

Ever hear of "economy of scale"? The more branches the more costs are spread and thus diluted. Yet, somehow Singapore has a low spread despite so few branches.

Economies of scale apply to the number of customers, not branches.

 

Say you got 10 branches with 1000 customers each. Total overhead is $10.000. Thats $1 cost per customer. Now if each branch doubles its customers the total cost will increase slightly, say to $11.000, giving a cost per customer of $0.55 ( = economies of scale).

 

But if you open double the branches your costs probably doubles also, or increases even by more as you need more layers of managers. Besides, the new branches probably also have fewer customers because they are at worse locations and have more competition (also compete against each other). The cost per customer will most likely be more than $1 per customer (20 branches with 900 customers each and $21.000 total costs).

 

The ideal situation would be 1 branch only, or just a headquarters, and everything else online. Fixed costs will be minimal and every additional customer will cost almost nothing extra.

[natway09]

Thailand banks charges are less than half Singapore's,

I know, I had two A/C;s there (note, past tense)