“Competition in banking sector remains weak”

Ladies and gentlemen : I eventually did it. I found a pertinent and smart comment made by a thai minister. And not any minister : the Finance Minister Suchart, someone I don’t really like (read here).

You see, I’m fair-play. πŸ˜‰

Competition in the banking sector remains weak, resulting in high interest rate spreads that hurt depositors and borrowers alike, according to Finance Minister Suchart Thada-Thamrongvech.

Dr Suchart, speaking to members of the House finance and banking committee, said competition in the Thai banking sector was considerably softer than in developed markets.

Weak competition in turn resulted in higher profits for banks.

Average minimum loan rates for the largest banks stand at around 7.5%, compared with savings deposit rates of just 0.75%.

“And even with prime lending rates at 7.5%, banks aren’t really that eager to lend, as they need to set aside reserves to cover their loans and they aren’t confident about whether loans will turn bad in the future or not,” Dr Suchart said.

“On the other hand, if they lend in the repurchase market, you can receive 3.75% with no risk or need to set aside reserves. And they still can profit from the spread against deposit rates.” (Bangkok Post)

Spot on ! Absolutly true. 100 %.

Let’s recap :

-banks borrow money at repurchase rate (3,75 %) (see my chart here).

-banks have a high minimum lending rate (7,50 %) (eventhough it’s possible to get a better rate, says one of my readers working in banking services).

-banks offer a ridiculously low interest rates for the deposits of their customers (0,75 %)

-therefore, thai banks make outrageous profits. They always win. πŸ˜‰

-and the reason of this (and this is the courageous fact pointed by the minister) is : A LACK OF COMPETITION

Suchart doesn’t speak about the weather, doesn’t try to forge an excuse. Indeed, the thai banking system is protected… Carefully controled by a few big families, groups and interests… In Thailand, like in many other countries, banks and power are linked. Intimately.

Now we are waiting for the Finance Minister to go further, and to increase competition by allowing more foreign players on the thai market. πŸ˜‰

2 Responses to ““Competition in banking sector remains weak””

  1. 1 Bedwyr 15 November 2008 at 9:21 am

    “Ladies and gentlemen : I eventually did it. I found a pertinent and smart comment made by a thai minister.”

    Well done TC. Just goes to show that perseverance overcomes all.

    But can you find another? One swallow doth not a summer make…

    Might just be an aberration- like cold fusion.


  2. 2 MSB 17 November 2008 at 8:15 am

    Agree with you on this one. Banking is woefully inefficient here although they have made a quantam leap since pre-crisis days.

    But its still a developing market that foreign players are looknig to exploit, even if they pay over the odds (CIMB for BT) for it.

    One solution the gov is unlikely to consider; allow foreign banks to have more than one branch.

    Personally I think in 5 years time all Thai banks will have a foreign strategic bank as partner/owner.

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Thailand Crisis

Coup, Economic slowdown, Terror In the South... The situation is worsening in Thailand. Bumpy road like often before.

But this time, it's different.

The key to understand the present turmoil is the inevitable... succession of King Bhumibol.

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