Rate cuts boost SMEs

TUESDAY, APRIL 05, 2016
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THE SURPRISE cut in lending rates this week by the major banks will help reduce the financial burden and increase the cash flow of their business clients, and small and medium-sized enterprises (SMEs) in particular, as more than 50 per cent of business bo

Kasikorn Research Centre’s head of money and banking, Thanyalak Vacharachaisurapol, said yesterday that the lending-rate cuts by commercial banks were another way to support SMEs, now that the country’s specialised financial institutions were focused on supporting consumption.
With more than 50 per cent of the lending portfolio of commercial banks accounted for by floating-rate customers, the rate cuts are expected to help reduce the financial burden on SMEs rather than increase lending demand, she said.
While the interest-rate reduction will not in itself persuade potential business borrowers to take out a loan, as other factors also come into consideration, current lending customers will benefit from the banks’ move as their financial burden will be reduced, she explained.
She said the average net interest margin (NIM) of the country’s 10 listed banks presently stood at 3.05 per cent, a level that could be reduced by 10 basis points based on the assumption of moderate loan growth.
An analyst at KTB Securities (Thailand) said the industry’s NIM would be reduced after the cut in lending rates and the profits made by the listed commercial banks.
The analyst added that the rate cuts might show that the banks were facing lower loan growth, causing them to push demand by taking such action.
However, the rate cut will not benefit the banks because the problem in relation to SME borrowers is how to control non-performing loans in the segment, as opposed to driving loan demand among smaller borrowers, the analyst added.
There is also the likelihood that the Monetary Policy Committee will cut the policy rate at its next meeting, because it said in its latest report that there was room to use monetary policy to enhance the economy.
This would leave the banks having to decide whether to lower their rates again, the KTB Securities analyst said.
Siam Commercial Bank (SCB) on Monday night announced a cut in its minimum lending rate (MLR) of 0.15 percentage point to 6.375 per cent, effective yesterday.
SCB will cut its MLR by a further 10 basis points after several banks cut theirs by 0.25 percentage points. Its new MLR will be 6.275 per cent, effective tomorrow.
Kasikornbank and Krungthai Bank yesterday morning announced they were reducing their MLRs by 0.25 percentage points each, with KBank’s falling to 6.25 per cent, effective tomorrow, and KTB’s dropping to 6.275 per cent, effective today.
TMB Bank is the first bank to cut both its MLR and minimum retail rate (MRR), by 25 basis points each, effective tomorrow.
The new MLR and MRR rates at TMB will be 6.775 per cent and 7.775 per cent, respectively.
Bangkok Bank yesterday evening announced a cut of 0.25 percentage point in its MLR to 6.25 per cent, effective today.
The chiefs of these banks said the lending-rate reductions were aimed at easing the financial burden on enterprises and supporting SMEs.
Banthoon Lamsam, chairman of KBank, said the move was in response to the government’s current policy targeted at helping SMEs, which formed a crucial sector of the economy.
According to the Office of Small and Medium Enterprises Promotion, SMEs account for 40 per cent of gross domestic product.
Arthid Nanthawithaya, chief executive officer of SCB, said the banking industry was a major mechanism for achieving economic growth, with the lending-rate cuts helping to support more investment in the country.
Despite the additional 10-basis-points cut in its MLR, bringing it in line with the moves by its peers, SCB’s overall reduction will not seriously impact on the bank’s operation and it will manage its funding cost to offset the cut, he added.
With SMEs having been badly affected by their interest-rate burden for two years, the rate reduction will positively impact their business sentiment, he said, explaining that the bank should not think profit in the short term, but should look at the long run because if its customers can survive, the bank will also survive.
Jaturong Jantarangs, Bank of Thailand assistant governor for the Monetary Policy Group, said the rate cut by some commercial banks would benefit borrowers, especially SMEs, as it would ease their interest-rate burden.
The banking industry has excess liquidity, while current monetary policy is providing room for the recovery of the Thai economy, he said, adding that the central bank believes other commercial banks will also lower their rates in line with the competition.