Thai Commercial bank rate spreads are high because risk is high
By Jon Fernquest
Thai commercial
banks have been slow to cut their interest rates on loans.This is the criticism that Finance Minister Korn Chatikavanij made last week.
The central bank has cut its policy interest rate by 1.75 percentage points over the past six weeks. The most recent reduction of 75 basis points last week brought the rate to 2%.
Interest rate spreads between commercial bank deposit rates and lending rates have remained as high as six percentage points.
Prime lending rates are the interest rates that a bank's best clients get. Prime lending rates currently stand at 6.75% for the largest banks. Savings deposit rates, meanwhile, stand at just 0.75%. Three-month fixed deposit rates are a little bit higher at 1.5%.
At least in theory lower central bank policy interest rates should lead to lower interest rates on the loans offered by commercial banks.
With lower interest rates for loans the cost of borrowing money would be reduced for firms and households:
1. Business loans: For firms,
long-term investments financed with loans would be less expensive.
2. Consumer credit, home loans: For households, expensive purchases such as houses, condos, cars, motorcycles, and refrigerators would be cheaper because the loan to finance them would have a lower interest rate.
2. Consumer credit, home loans: For households, expensive purchases such as houses, condos, cars, motorcycles, and refrigerators would be cheaper because the loan to finance them would have a lower interest rate.
Why haven't commercial bank lending rates fallen?
One of the big criticisms of the billions of dollars of bailout money that has been dished out to banks in the US is that banks aren't using this money to make loans (Read contrary opinion).The global financial crisis which has yet to hit Thailand with full force means there is a lot of uncertainty about how the Thai economy will fare in the future.
Encouraging SMEs to invest at a time like this, might be encouraging them to expand in a sluggish business environment that might lead to the failure of their business (See M.R. Pridiyathorn's criticism of more SME loans last week).
Economic uncertainty translates into higher risk premiums on loans to cover potential losses for lenders.
So it is unreasonable to expect that minimum lending rates will fall in lockstep with the central bank's policy rate.
(Photo on the right is of a young selling beads on the side of the street in Bangkok. A very small business that was probably self-financed without a bank loan.)
commercial banks - a
bank with branches in many different places providing services for
households and businesses such as providing loans and paying interest
on accounts where money is kept at the bank for different periods of
time (savings accounts, checking accounts, three month fixed deposit
accounts, etc) (See Wikipedia)
ธนาคารพาณิชย์
central bank policy interest rate - the interest rate that a central bank sets as part of monetary policy (often represents the rate that banks can borrow funds from the central bank at, this is the federal funds rate of the American central bank: The Fed) นโยบายอัตราดอกเบี้ยของธนาคารแห่งประเทศไทย
basis points - one hundredth of one per cent, used to express interest rates on bonds and bank loans
interest rate spreads - the difference between two interest rates (here the difference between deposit rates and lending rates) ตัวเลข หรือค่าที่ต่างกันระหว่างอัตราดอกเบี้ยเงินฝากและดอกเบี้ยเงินกู้
deposit rates - the interest rate that a bank gives to people who keep their money at the bank in an account อัตราดอกเบี้ยเงินฝาก หรือเงินออม
lending rates - the interest rate for loans อัตราดอกเบี้ยเงินกู้
prime lending rates - the interest rates that a bank's best customers get อัตราดอกเบี้ยสูงสุดที่่ลูกค้าได้รับ
savings deposits - money kept at the bank in an account that can be taken out at any time เงินออมทรัพย์
three-month fixed deposits - money that cannot be taken out of the bank for three months (without penalty), such an account earns a higher iinterest rate เงินฝากประจำสามเดือน
in theory - according to how people feel it should work (according to the ideas of economics, for example) โดยทางทฤษฎี
business loans -
consumer credit - loans to households for expensive purchases such as cars, motorcycles, and refrigerators เงินกู้เพื่อสำหรับครัวเรือน แต่ละธนาคารจะมีชื่อเรียกเงินกู้ประเภทนี้ต่างๆ กันไป
bailout - help in the form of money to prevent failure and bankruptcy ช่วยไม่ให้ธุรกิจล้มละลาย
dished out to - given to
contrary - opposite, does not agree ทางตรงกันข้าม
hit with full force - when the crisis has its greatest effect (like a storm at sea hitting the land ) ได้รับผลกระทบเต็มที่
how the economy will fare - what will happen to the economy in the future? good things or bad things? จะเกิดอะไรกับเศรษฐกิจโดยรวมในอนาคต
sluggish business environment - people are scared that they might lose a job or lose money in their business so they are not buying things, an economy needs people to buy things (consumption) to continue operation or else all businesses fail and everyone loses their job การขาดสภาพคล่องในธุรกิจ
risk premiums - extra amount of money charged for risk เงินประกันความเสี่ยง
cover losses - have enough money to protect against losses (so that the losses do not lead to failure) มีเงินทุนพอเพียงกับควาเสียหายที่อาจเกิดขึ้น
potential losses - losses that might happen in the future ความเสี่ยง
in lockstep - move at the same time, follow closely ตามมาติดๆ
central bank policy interest rate - the interest rate that a central bank sets as part of monetary policy (often represents the rate that banks can borrow funds from the central bank at, this is the federal funds rate of the American central bank: The Fed) นโยบายอัตราดอกเบี้ยของธนาคารแห่งประเทศไทย
basis points - one hundredth of one per cent, used to express interest rates on bonds and bank loans
interest rate spreads - the difference between two interest rates (here the difference between deposit rates and lending rates) ตัวเลข หรือค่าที่ต่างกันระหว่างอัตราดอกเบี้ยเงินฝากและดอกเบี้ยเงินกู้
deposit rates - the interest rate that a bank gives to people who keep their money at the bank in an account อัตราดอกเบี้ยเงินฝาก หรือเงินออม
lending rates - the interest rate for loans อัตราดอกเบี้ยเงินกู้
prime lending rates - the interest rates that a bank's best customers get อัตราดอกเบี้ยสูงสุดที่่ลูกค้าได้รับ
savings deposits - money kept at the bank in an account that can be taken out at any time เงินออมทรัพย์
three-month fixed deposits - money that cannot be taken out of the bank for three months (without penalty), such an account earns a higher iinterest rate เงินฝากประจำสามเดือน
in theory - according to how people feel it should work (according to the ideas of economics, for example) โดยทางทฤษฎี
business loans -
consumer credit - loans to households for expensive purchases such as cars, motorcycles, and refrigerators เงินกู้เพื่อสำหรับครัวเรือน แต่ละธนาคารจะมีชื่อเรียกเงินกู้ประเภทนี้ต่างๆ กันไป
bailout - help in the form of money to prevent failure and bankruptcy ช่วยไม่ให้ธุรกิจล้มละลาย
dished out to - given to
contrary - opposite, does not agree ทางตรงกันข้าม
hit with full force - when the crisis has its greatest effect (like a storm at sea hitting the land ) ได้รับผลกระทบเต็มที่
how the economy will fare - what will happen to the economy in the future? good things or bad things? จะเกิดอะไรกับเศรษฐกิจโดยรวมในอนาคต
sluggish business environment - people are scared that they might lose a job or lose money in their business so they are not buying things, an economy needs people to buy things (consumption) to continue operation or else all businesses fail and everyone loses their job การขาดสภาพคล่องในธุรกิจ
risk premiums - extra amount of money charged for risk เงินประกันความเสี่ยง
cover losses - have enough money to protect against losses (so that the losses do not lead to failure) มีเงินทุนพอเพียงกับควาเสียหายที่อาจเกิดขึ้น
potential losses - losses that might happen in the future ความเสี่ยง
in lockstep - move at the same time, follow closely ตามมาติดๆ
