Why such the big spread between savings rates and borrowing rates?

[steelepulse]

So I was perusing kbank's site and see they pay about 1% interest on savings, yet for consumer and commercial loans it looks like the average rate is above 10%. Where I come from the spread isn't nearly this large.  Is there any regulation in this industry and is their competition, or do all banks charge the same rates and there is little to no competition?  http://www.kasikornbank.com/EN/RatesAndFees/Lending/Pages/Lending.aspx

[meatboy]

just read their profit reports they are published in the paper we cant name.that will make your hair stand on end.

speculators.and we have tv.members worried about thai bank going bust.

there's not enough suitcases in Thailand.

[Pib]

Savings and lending rates vary from country-to-country depending on the status of the country's economy, currency, budget deficit, banking laws/rules, banking competition, etc. 

[steelepulse]

Sure spreads vary from country to country due to various factors, but banks seem to be on very solid footing here, especially with a 10 point spread! I looked at SCB bank also and they have pretty much the same rate. It seems the few banks here don't really try to compete and appear to almost collude to stay non competitive with each other.

[cocopops]

Sure spreads vary from country to country due to various factors, but banks seem to be on very solid footing here, especially with a 10 point spread! I looked at SCB bank also and they have pretty much the same rate. It seems the few banks here don't really try to compete and appear to almost collude to stay non competitive with each other.

 

They all have the same sources of funding, so you would expect their products and rates to be pretty similar as well. I don't think that indicates collusion, just the fact that they are all similar operations.

[worgeordie]

Banks do what they do best ,make profits,by any means necessary, 

just sometimes their greed gets the better of them,especially in the

West. Bht 150 to change a travelers cheque, thats robbery by the

banks in my opinion,as they already ,make profit on the exchange

rate, and yes the spread does look very healthy for the banks here.

 

Yes the do collude,several have been fined for just that over the

libor rate,in the US and UK,who knows what else they think they

can get away with. the days of trusting banks has been over for a while.

regards worgeordie

[Utley]

My guess is that Thai banks have large losses from bad loans government programs force them to make.  They need the large spreads to remain solvent.

[mccw]

Thai loan is 15% max ; (no compound interest); in the UK banks pay barely a single percent on savings over any meaningful amount while "pay day lenders" charge thousands of percent on an equivalent PA basis.
How do you like them apples?

[farang000999]

yeah i had been wondering about this as well.

[meatboy]

Sure spreads vary from country to country due to various factors, but banks seem to be on very solid footing here, especially with a 10 point spread! I looked at SCB bank also and they have pretty much the same rate. It seems the few banks here don't really try to compete and appear to almost collude to stay non competitive with each other.

the few banks here don't really try to compete.

well fri.me and wf.went to the mall [korat] to try and open savings acc.we have already got fixed accs.with them.their 36month savings rate of interest was at least 1.5% above the big three,we were there for 30mins and no one else came in,

as all the banks are together on one floor its easy to see whats going on in the others.

the big three whose interest for savers are terrible compared to the one we were in, yet those 3 were FULL.

WHAT DOES THAT SAY FOR BEING COMPETATIVE.

if you read my posts fri.just gone you will see they refused me an acc.saving the maximum every month for 3yrs.

[chiang mai]

You have to look at the two components separately, savings product rates are determined by the BOT (BIBOR) rate, just as UK savings rates are determined by the BOE rate (and market/gilts).

 

Lending rates are not connected to the above but instead are determined by the extent of competition in the market plus legislation. BOT sets the MLR or Minimum Lending Rate value, that is the minimum rate a bank will lend money to a customer with a perfect credit record - less than perfect credit holders incur increased rates. Mortgages for example are then offered at MLR +x% whilst unsecured loans are offered at MLR+y%.

 

So the real acid test of the gap between the lending and borrowing rates is the difference between the MLR and the BIBOR, at present that is 6.75% minus 2.0%, in practice however nearly all Thai banks are currently offering the BIBOR one year savings rate of 2.80% hence the gap is 6.75% minus 2.80%. Compare that to say HSBC UK where the BOE rate is 0.50%, savings products are around the same level yet the average prime lending lending rate is around 4.08%, the same spread as in Thailand.

[Eliot Rosewater]

Sure spreads vary from country to country due to various factors, but banks seem to be on very solid footing here, especially with a 10 point spread! I looked at SCB bank also and they have pretty much the same rate. It seems the few banks here don't really try to compete and appear to almost collude to stay non competitive with each other.

Price fixing, collusion, monopolies; in THAILAND; nooooo.....say it ain't so...

[steelepulse]

You have to look at the two components separately, savings product rates are determined by the BOT (BIBOR) rate, just as UK savings rates are determined by the BOE rate (and market/gilts).

 

Lending rates are not connected to the above but instead are determined by the extent of competition in the market plus legislation. BOT sets the MLR or Minimum Lending Rate value, that is the minimum rate a bank will lend money to a customer with a perfect credit record - less than perfect credit holders incur increased rates. Mortgages for example are then offered at MLR +x% whilst unsecured loans are offered at MLR+y%.

 

So the real acid test of the gap between the lending and borrowing rates is the difference between the MLR and the BIBOR, at present that is 6.75% minus 2.0%, in practice however nearly all Thai banks are currently offering the BIBOR one year savings rate of 2.80% hence the gap is 6.75% minus 2.80%. Compare that to say HSBC UK where the BOE rate is 0.50%, savings products are around the same level yet the average prime lending lending rate is around 4.08%, the same spread as in Thailand.

 

This makes quite a bit of since and thanks for clarifying, but in reality are banks lending at MLR of 6.75 and paying the 2.8? Just browsing a few different bank sites, it seems for loans for housing, businesses, etc. the rate looked to be pretty much set at 12-13%, going up to 18 for unsecured, while offering around 1-1.4 percent for fixed term deposits.  Yes they do mention the MLR, but I didn't really see where they offered this rate for normal everyday type loans.

[chiang mai]

 

You have to look at the two components separately, savings product rates are determined by the BOT (BIBOR) rate, just as UK savings rates are determined by the BOE rate (and market/gilts).

 

Lending rates are not connected to the above but instead are determined by the extent of competition in the market plus legislation. BOT sets the MLR or Minimum Lending Rate value, that is the minimum rate a bank will lend money to a customer with a perfect credit record - less than perfect credit holders incur increased rates. Mortgages for example are then offered at MLR +x% whilst unsecured loans are offered at MLR+y%.

 

So the real acid test of the gap between the lending and borrowing rates is the difference between the MLR and the BIBOR, at present that is 6.75% minus 2.0%, in practice however nearly all Thai banks are currently offering the BIBOR one year savings rate of 2.80% hence the gap is 6.75% minus 2.80%. Compare that to say HSBC UK where the BOE rate is 0.50%, savings products are around the same level yet the average prime lending lending rate is around 4.08%, the same spread as in Thailand.

 

This makes quite a bit of since and thanks for clarifying, but in reality are banks lending at MLR of 6.75 and paying the 2.8? Just browsing a few different bank sites, it seems for loans for housing, businesses, etc. the rate looked to be pretty much set at 12-13%, going up to 18 for unsecured, while offering around 1-1.4 percent for fixed term deposits.  Yes they do mention the MLR, but I didn't really see where they offered this rate for normal everyday type loans.

 

 

It's very unlikely that the average customer would be able to negotiate the MLR on a loan since MLR is the base level to which a percentage must be added based on the type of loan being made - obviously, secured lending rates are lower than unsecured lending rates and then of course there's the variable of the customers credit worthiness. Another dimension of course is the difference between the retail (consumer) rate and the commercial (business) rate. On retail loans the relationship between the different levels of lending, all based on risk, will look something like this:

 

Preferred customer with 5 star credit borrows (secured) less than 50% = MLR+1%

Customer with A1 secured credit borrows less than 75% LTV. = MLR+2%

Customer with A1 credit borrows 90% LTV = MLR+3%

Customer with C grade credit borrows 80% LTV = MLR+4%

Customer with A1 credit borrows unsecured = MLR+6%

Customer with C grade credit borrows unsecured = MLR+8%

 

I've never looked into the numbers here but I'm guessing it must be possible for a customer with decent credit to get say MLR + 2% on a mortgage where the loan to value ratio is better than 75%, others will no doubt come along shortly and tell me if this is correct or not. But I do know for a fact that at least three banks in Thailand have fixed rate deposits paying 2.8% because I have a couple, so I'm confident that side of the equation is sound.
 

Edited August 6, 2014 by chiang mai

[chiang mai]

I came across the following from the BOT which provides useful definitions:

 

http://www2.bot.or.th/statistics/Download/FM_RT_001_ENG.PDF

[meatboy]

good news could be on the horizon,its expected that mortgage loans will rise by 10% next yr,webfact 6.13am.so all you banks that need some money to lend I will settle for 4%.

[steelepulse]

 

 

You have to look at the two components separately, savings product rates are determined by the BOT (BIBOR) rate, just as UK savings rates are determined by the BOE rate (and market/gilts).

 

Lending rates are not connected to the above but instead are determined by the extent of competition in the market plus legislation. BOT sets the MLR or Minimum Lending Rate value, that is the minimum rate a bank will lend money to a customer with a perfect credit record - less than perfect credit holders incur increased rates. Mortgages for example are then offered at MLR +x% whilst unsecured loans are offered at MLR+y%.

 

So the real acid test of the gap between the lending and borrowing rates is the difference between the MLR and the BIBOR, at present that is 6.75% minus 2.0%, in practice however nearly all Thai banks are currently offering the BIBOR one year savings rate of 2.80% hence the gap is 6.75% minus 2.80%. Compare that to say HSBC UK where the BOE rate is 0.50%, savings products are around the same level yet the average prime lending lending rate is around 4.08%, the same spread as in Thailand.

 

This makes quite a bit of since and thanks for clarifying, but in reality are banks lending at MLR of 6.75 and paying the 2.8? Just browsing a few different bank sites, it seems for loans for housing, businesses, etc. the rate looked to be pretty much set at 12-13%, going up to 18 for unsecured, while offering around 1-1.4 percent for fixed term deposits.  Yes they do mention the MLR, but I didn't really see where they offered this rate for normal everyday type loans.

 

 

It's very unlikely that the average customer would be able to negotiate the MLR on a loan since MLR is the base level to which a percentage must be added based on the type of loan being made - obviously, secured lending rates are lower than unsecured lending rates and then of course there's the variable of the customers credit worthiness. Another dimension of course is the difference between the retail (consumer) rate and the commercial (business) rate. On retail loans the relationship between the different levels of lending, all based on risk, will look something like this:

 

Preferred customer with 5 star credit borrows (secured) less than 50% = MLR+1%

Customer with A1 secured credit borrows less than 75% LTV. = MLR+2%

Customer with A1 credit borrows 90% LTV = MLR+3%

Customer with C grade credit borrows 80% LTV = MLR+4%

Customer with A1 credit borrows unsecured = MLR+6%

Customer with C grade credit borrows unsecured = MLR+8%

 

I've never looked into the numbers here but I'm guessing it must be possible for a customer with decent credit to get say MLR + 2% on a mortgage where the loan to value ratio is better than 75%, others will no doubt come along shortly and tell me if this is correct or not. But I do know for a fact that at least three banks in Thailand have fixed rate deposits paying 2.8% because I have a couple, so I'm confident that side of the equation is sound.
 

 

 

Thanks, so from what I looked at on kbank in regards to a heloc, the rate is around 12-13%, which makes it pretty steep, inline with your above at MLR+6.  Maybe if the land securing is worth more than 5X the loan amount, a lower rate could be negotiated.

 

On your fixed rate of 2.8, what is the term period?

 

[chiang mai]

 

 

Thanks, so from what I looked at on kbank in regards to a heloc, the rate is around 12-13%, which makes it pretty steep, inline with your above at MLR+6.  Maybe if the land securing is worth more than 5X the loan amount, a lower rate could be negotiated.

 

On your fixed rate of 2.8, what is the term period?

 

 

 

2.8% fixed rate deposits run from between 8 and fourteen months currently, the nice thing about fixed rate deposits is that you can get out of them at any time, albeit you loose any interest earned which is then recalculated for the period at around 0.75%..

[Suradit69]

My Bank of America checking account in the US pays me 0%. Before I opted for this rate, I was getting something under 1% as I do with my brokerage money market accounts, but when I was getting the absurdly low bank rates I also could have paid bank charges for some services. 0% was actually a better deal.

 

On the other hand credit cards issued by Bank America or Citibank and others in the US have an average nationwide rate of 15% plus and a lot of people pay much more.

 

At least temporarily the banks are being watched more closely so they have fewer ways to steal ... I mean profit ... from customers business, so they have to keep the spread as wide as possible in order to pay their execs hundreds of millions of dollars in compensation.

 

By comparison, Thai banks are generous.

Edited August 7, 2014 by Suradit69

[MoonShadow]

If you look at the quoted rates, with the exception of those wholly or partially secured by deposits, the rates all refer to unsecured loans. That means if the loan goes bad the bank has no recourse to security so the whole loan balance is at risk. It does not relate to Mortgage loans or other loans such as car loans where there is some or total undelying security. The margin has to be able to absorb any loan losses. If you take a normal credit card in the "West"  the unsecured rate is usually around 2% pm.....yes 24% PA.....(was 3% a while back!) and most banks unsecured loan rates will carry large margins.

In more developed markets credit scoring and credit bureau data will help the lender in loan selection to minimise losses and keep rates lower. In Thailand and most other Asian markets the data simply does not exist to support this yet although it is being worked on. So margins will stay high as long as the Banks focus on growing their consumer loans businesses.

[Thai at Heart]

Ummmm, oligopoly and restrictions to entry to market?

[MoonShadow]

Ummmm, oligopoly and restrictions to entry to market?

 

I suggest you check BOT's criteria to set up a Commercial Bank in Thailand and compare them to any other market ........not much difference except where it comes to Foreign Banks.

[JacChang]

good news could be on the horizon,its expected that mortgage loans will rise by 10% next yr,webfact 6.13am.so all you banks that need some money to lend I will settle for 4%.

That's why I loaded some LHBANK shares.   They are the best when mortgage is concerned.

 

To the OP, with regards to the spread, many factors come into play which include inflation, changes in interest rate, costs/fees, debt default, etc.

 

If the savings was 1% and the loan was 3%, bearing in mind savings is liquid, and loans are generally illiquid and longer term.

 

If in 2000, we choose as the starting point. We have savings of 1%, and loans at 3%. Banks gain less than 2%.

 

In 2005, savings are 3%, Loans are 9%. Remember savings are liquid, savings from 2000 have already expired. No longer are the banks paying customers 1%, they are paying 3% now. Their "costs" have increased 2% so to speak. Loans? Maybe half 3% and half 9%. Those loans from 2000 still exist. Translated to easier terms, the bank is getting paid 3% and paying 3% on some "transactions".

 

As you can see, the 2005 savings 3% and loans 9%, suddenly seem more fair. If the bank has 50% loans from 2000, and 50% loans from 2005, that equates to loan of 6% (3+9=12/2=6). With current 2005 savings rate of 3% and getting paid 6%, seems fair?

 

Bank's never ever work for free. Hope this helps.

[metaben]

Interest rates are based on risk, this easily explains the rates here.

Example: what rate would you apply to anyone you've met here if they were to ask you for a loan?

 

 

[chiang mai]

 

good news could be on the horizon,its expected that mortgage loans will rise by 10% next yr,webfact 6.13am.so all you banks that need some money to lend I will settle for 4%.

That's why I loaded some LHBANK shares.   They are the best when mortgage is concerned.

 

To the OP, with regards to the spread, many factors come into play which include inflation, changes in interest rate, costs/fees, debt default, etc.

 

If the savings was 1% and the loan was 3%, bearing in mind savings is liquid, and loans are generally illiquid and longer term.

 

If in 2000, we choose as the starting point. We have savings of 1%, and loans at 3%. Banks gain less than 2%.

 

In 2005, savings are 3%, Loans are 9%. Remember savings are liquid, savings from 2000 have already expired. No longer are the banks paying customers 1%, they are paying 3% now. Their "costs" have increased 2% so to speak. Loans? Maybe half 3% and half 9%. Those loans from 2000 still exist. Translated to easier terms, the bank is getting paid 3% and paying 3% on some "transactions".

 

As you can see, the 2005 savings 3% and loans 9%, suddenly seem more fair. If the bank has 50% loans from 2000, and 50% loans from 2005, that equates to loan of 6% (3+9=12/2=6). With current 2005 savings rate of 3% and getting paid 6%, seems fair?

 

Bank's never ever work for free. Hope this helps.

 

 

It's not that often that I take such exception to almost everything a poster has to say but that's certainly happening in this case, mostly because it's rubbish!

 

BOT establishes the MML hence it maintains the spread on behalf of Thai banks, until fairly recently BOT also capped the MLR although this was eventually removed in favour of fair and open market competition. Individual banks on the other hand adjust their loan books in real time according to the rate set hence the virtual spread is more or less consistent over time - ROCE may be impacted by rate changes but profitability is not! Spread is there broadly consistent over time, as explained in post 11.

 

.

 

 

Edited August 7, 2014 by chiang mai

[mccw]

Funny the difference people demonstrate between imagination and facts.
Not just this area; the same phenomena is displayed across the world. Great snap shot of brain activity and the human condition these forums.

[JacChang]

 

 

good news could be on the horizon,its expected that mortgage loans will rise by 10% next yr,webfact 6.13am.so all you banks that need some money to lend I will settle for 4%.

That's why I loaded some LHBANK shares.   They are the best when mortgage is concerned.

 

To the OP, with regards to the spread, many factors come into play which include inflation, changes in interest rate, costs/fees, debt default, etc.

 

If the savings was 1% and the loan was 3%, bearing in mind savings is liquid, and loans are generally illiquid and longer term.

 

If in 2000, we choose as the starting point. We have savings of 1%, and loans at 3%. Banks gain less than 2%.

 

In 2005, savings are 3%, Loans are 9%. Remember savings are liquid, savings from 2000 have already expired. No longer are the banks paying customers 1%, they are paying 3% now. Their "costs" have increased 2% so to speak. Loans? Maybe half 3% and half 9%. Those loans from 2000 still exist. Translated to easier terms, the bank is getting paid 3% and paying 3% on some "transactions".

 

As you can see, the 2005 savings 3% and loans 9%, suddenly seem more fair. If the bank has 50% loans from 2000, and 50% loans from 2005, that equates to loan of 6% (3+9=12/2=6). With current 2005 savings rate of 3% and getting paid 6%, seems fair?

 

Bank's never ever work for free. Hope this helps.

 

 

It's not that often that I take such exception to almost everything a poster has to say but that's certainly happening in this case, mostly because it's rubbish!

 

BOT establishes the MML hence it maintains the spread on behalf of Thai banks, until fairly recently BOT also capped the MLR although this was eventually removed in favour of fair and open market competition. Individual banks on the other hand adjust their loan books in real time according to the rate set hence the virtual spread is more or less consistent over time - ROCE may be impacted by rate changes but profitability is not! Spread is there broadly consistent over time, as explained in post 11.

 

.

 

 

 

Irrelevant to the OP's question.

Anyone can read the internet's information and repeat what is stated. We know the BOT sets the MML and MLR, that's what central banks do and regulate. The question is Why? Which you have failed to reply. It's good to be a dictionary, but sometimes you really have to see what people want to know.

[ggt]

There are banks around the world that pay no interest for the privilege of using your money...actually charge you a monthly charge for using your money...charge excessive interest rates to borrowers of your money...gamble away your money on derivatives...and when they go bust because of unethical banking practices...use your money again in the form of government bailouts to keep them from closing their doors...all the while...paying their executives extraordinary salaries and of course...bonuses for doing such a good job...

 

Welcome to Truth in Banking...

[Sydebolle]

Dude, its called bonus and that's what those bankers get to frenzy on Wall Street! 

[chiang mai]

 

 

 

good news could be on the horizon,its expected that mortgage loans will rise by 10% next yr,webfact 6.13am.so all you banks that need some money to lend I will settle for 4%.

That's why I loaded some LHBANK shares.   They are the best when mortgage is concerned.

 

To the OP, with regards to the spread, many factors come into play which include inflation, changes in interest rate, costs/fees, debt default, etc.

 

If the savings was 1% and the loan was 3%, bearing in mind savings is liquid, and loans are generally illiquid and longer term.

 

If in 2000, we choose as the starting point. We have savings of 1%, and loans at 3%. Banks gain less than 2%.

 

In 2005, savings are 3%, Loans are 9%. Remember savings are liquid, savings from 2000 have already expired. No longer are the banks paying customers 1%, they are paying 3% now. Their "costs" have increased 2% so to speak. Loans? Maybe half 3% and half 9%. Those loans from 2000 still exist. Translated to easier terms, the bank is getting paid 3% and paying 3% on some "transactions".

 

As you can see, the 2005 savings 3% and loans 9%, suddenly seem more fair. If the bank has 50% loans from 2000, and 50% loans from 2005, that equates to loan of 6% (3+9=12/2=6). With current 2005 savings rate of 3% and getting paid 6%, seems fair?

 

Bank's never ever work for free. Hope this helps.

 

 

It's not that often that I take such exception to almost everything a poster has to say but that's certainly happening in this case, mostly because it's rubbish!

 

BOT establishes the MML hence it maintains the spread on behalf of Thai banks, until fairly recently BOT also capped the MLR although this was eventually removed in favour of fair and open market competition. Individual banks on the other hand adjust their loan books in real time according to the rate set hence the virtual spread is more or less consistent over time - ROCE may be impacted by rate changes but profitability is not! Spread is there broadly consistent over time, as explained in post 11.

 

.

 

 

 

Irrelevant to the OP's question.

Anyone can read the internet's information and repeat what is stated. We know the BOT sets the MML and MLR, that's what central banks do and regulate. The question is Why? Which you have failed to reply. It's good to be a dictionary, but sometimes you really have to see what people want to know.

 

 

No, central banks establish the reference rate, BOT also sets the MLR, other central banks don't typically do the latter hence BOT is key in establishing the minimum spread, got it now!