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

[Bcgardener]

Having had a fair bit of contact with KBank over the last few years with our business I have always struggled to understand the logic with loans. Some of the posts here have gone a long way to clear all this up... Thank you to all.
We have a top credit rating with KBank and from what I read here we are paying about 2% over MLR for secured money and 3% over for unsecured.

[TallGuyJohninBKK]

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.

 

If you want to talk spreads, the normal Thai bank credit card (unsecured debit) carries a 20% APR... And the best deposit account interest rates these days are 2-3%. So that's a whole lot more than a 10% interest spread.

 

Edited August 7, 2014 by TallGuyJohninBKK

[steelepulse]

Nice to see the thread is generating some interest ( no pun intended) and information.  To add to the info, I was just reading today the the rate the gov't loans money to banks will stay at 2%, so even if banks borrow at 2 and charge the minimum of 6.75, that's still a really healthy spread. 

 

Someone mentioned about secured and unsecured money, but if someone wants a home equity loan, the loan is secured by the equity in the property, yet the banks still charge between 12-13% for someone with good credit, so that seems way too much compared to the rest of the world with a stable economy.  How do the banks in say Japan and the US compare spread wise?  Neither of these countries have a spread nearly as large.

[chiang mai]

In practice that doesn't happen very often, the reference rate is an overnight rate paid by the lender of last resort, one year loans at BIBOR would be around 2.5%. And since most large bank loans are for longer than one year, the rate (cost of funds to the bank) increases proportionately.

 

If you want to see the spreads of various countries, see the following, Thailand actually looks very good by comparison to some places:

 

http://data.worldbank.org/indicator/FR.INR.LNDP

 

.

Edited August 7, 2014 by chiang mai

[AnotherOneAmerican]

Nice to see the thread is generating some interest ( no pun intended) and information.  To add to the info, I was just reading today the the rate the gov't loans money to banks will stay at 2%, so even if banks borrow at 2 and charge the minimum of 6.75, that's still a really healthy spread. 
 
Someone mentioned about secured and unsecured money, but if someone wants a home equity loan, the loan is secured by the equity in the property, yet the banks still charge between 12-13% for someone with good credit, so that seems way too much compared to the rest of the world with a stable economy.  How do the banks in say Japan and the US compare spread wise?  Neither of these countries have a spread nearly as large.

Thai banks charge about 7% on home loans.
(That's half what you stated)

[JacChang]

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That's why I loaded some LHBANK shares. alt=laugh.png>  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.

 

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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!

 

 

No it's not. BOT is the central bank, and they will regulate the MML and MLR as they see fit for the economy, which banks can work with. Banks can then adjust it according to their situations. Please provide sources for your claim other central banks don't typically do. Need facts.

[chiang mai]

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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!

 

 

No it's not. BOT is the central bank, and they will regulate the MML and MLR as they see fit for the economy, which banks can work with. Banks can then adjust it according to their situations. Please provide sources for your claim other central banks don't typically do. Need facts.

 

For the very last time: BOT sets the reference rate and determines the MLR which is used by banks in Thailand, that is the spread that this thread discusses. There is no maximum lending rate, that was removed some years ago in favour of more open competition amongst banks, banks in Thailand charge MLR + for their products as described in great detail earlier, ergo, BOT determines the spread.

 

BOE and the US Fed on the other hand operate a different model where they set the base rate (or prime rate), they DO NOT establish MLR, MLR in those countries (and others) is the prime or the base rate.

 

Feel free to post links that refute anything I've said, my references are already posted in the thread, but please, enough of the waffle and "no it's not" mantra.

 

 

 

 

 

[akentryan]

Fixed rates were at 3.44% (44mos) at Krung Thai Bank but expired 7/31. OUB has 3.25% for 36 mos currently. The SCB rate of 4% is crap, the 4% rate only applies to the last month of the term meaning the effective rate is only 2.8%. Bangkok Bank offers 2.75% the last I time checked. Krung Thai and UOB pay interest monthly but SCB does not.

 

A family member just got an auto loan for 2.9% and was happy with it. I suspect the 2.9% was add-on interest meaning the true rate is approximately 5.8%. 

 

I had a fixed deposit with SCB and the interest I received was 1,100 short. I asked the branch manager about and she said she had never had a customer check an interest amount before. Loan amount times interest rate equals annual interest. Annual interest divided by 365 equals daily rate. Number of days in the period (first or last but not both) times the daily rate equals period interest. May be off a baht or two due to rounding.

 

Keep in mind if you have a large amount to deposit the manager has the ability to add a little to the fixed rate - probably not more than .10 to .30% but every little bit helps.

 

Don't forget to file a Thai Income tax return and get the 15% withheld amount back.

[meatboy]

Fixed rates were at 3.44% (44mos) at Krung Thai Bank but expired 7/31. OUB has 3.25% for 36 mos currently. The SCB rate of 4% is crap, the 4% rate only applies to the last month of the term meaning the effective rate is only 2.8%. Bangkok Bank offers 2.75% the last I time checked. Krung Thai and UOB pay interest monthly but SCB does not.

 

A family member just got an auto loan for 2.9% and was happy with it. I suspect the 2.9% was add-on interest meaning the true rate is approximately 5.8%. 

 

I had a fixed deposit with SCB and the interest I received was 1,100 short. I asked the branch manager about and she said she had never had a customer check an interest amount before. Loan amount times interest rate equals annual interest. Annual interest divided by 365 equals daily rate. Number of days in the period (first or last but not both) times the daily rate equals period interest. May be off a baht or two due to rounding.

 

Keep in mind if you have a large amount to deposit the manager has the ability to add a little to the fixed rate - probably not more than .10 to .30% but every little bit helps.

 

Don't forget to file a Thai Income tax return and get the 15% withheld amount back.

we have a large amount with LH and interest is paid monthly into a current acc.it almost differs every month as its calculated daily,so it can be 28days-31days,exspecially if the interest is due on a weekend.

talking about getting a bit more,we have done ok.with the last transfers the last we got 16satang better than tt.rate.

as there as been much publicity regarding libor,how many of us have been done.

[JacChang]

 

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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!

 

 

No it's not. BOT is the central bank, and they will regulate the MML and MLR as they see fit for the economy, which banks can work with. Banks can then adjust it according to their situations. Please provide sources for your claim other central banks don't typically do. Need facts.

 

For the very last time: BOT sets the reference rate and determines the MLR which is used by banks in Thailand, that is the spread that this thread discusses. There is no maximum lending rate, that was removed some years ago in favour of more open competition amongst banks, banks in Thailand charge MLR + for their products as described in great detail earlier, ergo, BOT determines the spread.

 

BOE and the US Fed on the other hand operate a different model where they set the base rate (or prime rate), they DO NOT establish MLR, MLR in those countries (and others) is the prime or the base rate.

 

Feel free to post links that refute anything I've said, my references are already posted in the thread, but please, enough of the waffle and "no it's not" mantra.

 

 

 

 

 

 

 

For the very very really last time, the OP requires the reason why there is a spread between the interest rate and loan rate, the factors behind it. The banks will have to determine the NIM when taking into account the various factors on my first post. The debt service ratio is also frequently used by bankers to determine the rate which will be given to the customers. But mostly the change in interest rates, which can be done by monetary policy from the central bank.

The other factors are already stated in my previous posts, please provide additional explanation into the factors deeper, as you seem to have more experience in this banking industry, so we all can understand more.

[chiang mai]

 

 

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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!

 

 

No it's not. BOT is the central bank, and they will regulate the MML and MLR as they see fit for the economy, which banks can work with. Banks can then adjust it according to their situations. Please provide sources for your claim other central banks don't typically do. Need facts.

 

For the very last time: BOT sets the reference rate and determines the MLR which is used by banks in Thailand, that is the spread that this thread discusses. There is no maximum lending rate, that was removed some years ago in favour of more open competition amongst banks, banks in Thailand charge MLR + for their products as described in great detail earlier, ergo, BOT determines the spread.

 

BOE and the US Fed on the other hand operate a different model where they set the base rate (or prime rate), they DO NOT establish MLR, MLR in those countries (and others) is the prime or the base rate.

 

Feel free to post links that refute anything I've said, my references are already posted in the thread, but please, enough of the waffle and "no it's not" mantra.

 

 

 

 

 

 

 

For the very very really last time, the OP requires the reason why there is a spread between the interest rate and loan rate, the factors behind it. The banks will have to determine the NIM when taking into account the various factors on my first post. The debt service ratio is also frequently used by bankers to determine the rate which will be given to the customers. But mostly the change in interest rates, which can be done by monetary policy from the central bank.

The other factors are already stated in my previous posts, please provide additional explanation into the factors deeper, as you seem to have more experience in this banking industry, so we all can understand more.

 

 

I'm tired of arguing with you in two threads on banking related issues, you've already posted more nonsense and B/S in 24 hours than most people post in a month.  I'll leave it to readers to decide what they think of your "facts".
 

[atpeace]

Odd how many posters are fervent in their response to greed in regards to banks.  Consumers borrowing money for items they can't pay for directly isn't greedy?  It is strange how borrowers  blame everybody else but themselves. Sure i couldn't afford the home but the greedy banker gave me the money.  Then they go off on derivative, credit swaps...  which they know nothing about.

[JacChang]

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Odd how many posters are fervent in their response to greed in regards to banks.  Consumers borrowing money for items they can't pay for directly isn't greedy?  It is strange how borrowers  blame everybody else but themselves. Sure i couldn't afford the home but the greedy banker gave me the money.  Then they go off on derivative, credit swaps...  which they know nothing about.

+1 True

Same with how the poor borrows money and when it's time for debt collection, the banks are the bad guys.

Surely they knew what they were getting into, they are the ones requiring help, should they not return the favor?

 

 

 

 

 

For the very last time: BOT sets the reference rate and determines the MLR which is used by banks in Thailand, that is the spread that this thread discusses. There is no maximum lending rate, that was removed some years ago in favour of more open competition amongst banks, banks in Thailand charge MLR + for their products as described in great detail earlier, ergo, BOT determines the spread.

 

BOE and the US Fed on the other hand operate a different model where they set the base rate (or prime rate), they DO NOT establish MLR, MLR in those countries (and others) is the prime or the base rate.

 

Feel free to post links that refute anything I've said, my references are already posted in the thread, but please, enough of the waffle and "no it's not" mantra.

 

 

 

 

 

 

 

For the very very really last time, the OP requires the reason why there is a spread between the interest rate and loan rate, the factors behind it. The banks will have to determine the NIM when taking into account the various factors on my first post. The debt service ratio is also frequently used by bankers to determine the rate which will be given to the customers. But mostly the change in interest rates, which can be done by monetary policy from the central bank.

The other factors are already stated in my previous posts, please provide additional explanation into the factors deeper, as you seem to have more experience in this banking industry, so we all can understand more.

 

 

I'm tired of arguing with you in two threads on banking related issues, you've already posted more nonsense and B/S in 24 hours than most people post in a month.  I'll leave it to readers to decide what they think of your "facts".
 

 

 

Sure, I've beat down all the facts against your quote. Oh, right, it's my problem YOU wanted to quote someone's post, remember you provoked the wolf first, I never bothered you .

Tired is a good excuse when you can't counter your false statements, which I am going to correct constantly. I don't like people with false information claiming as true.

Bye

[spidermike007]

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. 

 

 

 

Talk about an answer without an answer! He was asking why is there such a large spread. You did not address that. It does seem exceptionally large. Obviously the banks here are very conservative. 

[Naam]

 

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. 

Talk about an answer without an answer! He was asking why is there such a large spread. You did not address that. It does seem exceptionally large. Obviously the banks here are very conservative. 

the simple answer is that goods and services are provided based on offer and demand. neither a Ph.D. nor rocket science required to understand this fact.

[AnotherOneAmerican]

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Odd how many posters are fervent in their response to greed in regards to banks.  Consumers borrowing money for items they can't pay for directly isn't greedy?  It is strange how borrowers  blame everybody else but themselves. Sure i couldn't afford the home but the greedy banker gave me the money.  Then they go off on derivative, credit swaps...  which they know nothing about.

+1 True
Same with how the poor borrows money and when it's time for debt collection, the banks are the bad guys.
Surely they knew what they were getting into, they are the ones requiring help, should they not return the favor?

I believe the idea is that modern financial institutions have a responsibility towards their customers.
They shouldn't lend to people who can't pay back.

Greedy bankers lending to people who can't pay back has destroyed the western world for everyone.
But strangely, the greedy bankers never seem to suffer for it.

[JacChang]

 

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Odd how many posters are fervent in their response to greed in regards to banks.  Consumers borrowing money for items they can't pay for directly isn't greedy?  It is strange how borrowers  blame everybody else but themselves. Sure i couldn't afford the home but the greedy banker gave me the money.  Then they go off on derivative, credit swaps...  which they know nothing about.

+1 True
Same with how the poor borrows money and when it's time for debt collection, the banks are the bad guys.
Surely they knew what they were getting into, they are the ones requiring help, should they not return the favor?

 

I believe the idea is that modern financial institutions have a responsibility towards their customers.
They shouldn't lend to people who can't pay back.

Greedy bankers lending to people who can't pay back has destroyed the western world for everyone.
But strangely, the greedy bankers never seem to suffer for it.

 

Exactly, but that's what we talking about here. Due negligence. It seems all the blame is always put on the greedy bankers and none at the customer who failed to pay the debt. I am sure the bank's part exercises to some extent due negligence, they wouldn't want to loan to just anybody and incur a large percentage of defaults. So the bank has somewhat done their part. Next, the customers, what have they done? Nothing. The one who does nothing and yet takes no responsibility. That is a no plus a no right there. Be it the interest, the payment schedule, and lastly the ability to pay the said loan. It's called responsibility. Would I dare go to the bank and get any loan? I would be worried, and doing my own calculations. But these customers are just like "whatever, just show me the money, i'll sign whatever you want". It's this attitude that gets them in trouble, not the greedy bankers. Our laws have gone quite a long way since that perception, with banks requiring to state everything clearly on fine print, requirement to do certain checks on customers to see if they are eligible for the loan, and to give certain precautions on how the loan would affect the customer. There is only hate, because the bankers won. Remember, on a different perspective, who is more right? "Bankers who lend to people who can't pay back" or "Customers who get a loan who knew they can't pay back".

[chiang mai]

 

Exactly, but that's what we talking about here. Due negligence. It seems all the blame is always put on the greedy bankers and none at the customer who failed to pay the debt. I am sure the bank's part exercises to some extent due negligence, they wouldn't want to loan to just anybody and incur a large percentage of defaults. So the bank has somewhat done their part. Next, the customers, what have they done? Nothing. The one who does nothing and yet takes no responsibility. That is a no plus a no right there. Be it the interest, the payment schedule, and lastly the ability to pay the said loan. It's called responsibility. Would I dare go to the bank and get any loan? I would be worried, and doing my own calculations. But these customers are just like "whatever, just show me the money, i'll sign whatever you want". It's this attitude that gets them in trouble, not the greedy bankers. Our laws have gone quite a long way since that perception, with banks requiring to state everything clearly on fine print, requirement to do certain checks on customers to see if they are eligible for the loan, and to give certain precautions on how the loan would affect the customer. There is only hate, because the bankers won. Remember, on a different perspective, who is more right? "Bankers who lend to people who can't pay back" or "Customers who get a loan who knew they can't pay back".

 

 

Presumably you mean due diligence!

[JacChang]

 

 

Exactly, but that's what we talking about here. Due negligence. It seems all the blame is always put on the greedy bankers and none at the customer who failed to pay the debt. I am sure the bank's part exercises to some extent due negligence, they wouldn't want to loan to just anybody and incur a large percentage of defaults. So the bank has somewhat done their part. Next, the customers, what have they done? Nothing. The one who does nothing and yet takes no responsibility. That is a no plus a no right there. Be it the interest, the payment schedule, and lastly the ability to pay the said loan. It's called responsibility. Would I dare go to the bank and get any loan? I would be worried, and doing my own calculations. But these customers are just like "whatever, just show me the money, i'll sign whatever you want". It's this attitude that gets them in trouble, not the greedy bankers. Our laws have gone quite a long way since that perception, with banks requiring to state everything clearly on fine print, requirement to do certain checks on customers to see if they are eligible for the loan, and to give certain precautions on how the loan would affect the customer. There is only hate, because the bankers won. Remember, on a different perspective, who is more right? "Bankers who lend to people who can't pay back" or "Customers who get a loan who knew they can't pay back".

 

 

Presumably you mean due diligence!

 

Haha, right.