Chart : “thai interest rate structure is abnormal”

The Thai interest rate structure does not resemble anything one is likely to find in an economics textbook.

At present, the Bank of Thailand’s policy rate stands at 2.75 per cent. The commercial banks quote one-year deposits at 1.75 per cent, while charging borrowers 6.75 to 7 per cent. This interest rate structure is abnormal.

Unlike the US federal funds rate, the BOT’s policy rate has no direct impact on the banking market at all. If the BOT were to cut its policy rate by another 50 basis points to 2.25 per cent this month, it would do little to bring down commercial bank rates.

Thai banks have traditionally enjoyed a fat interest margin. Their net interest margin – the differential between deposit and borrowing rates – is between 3.2 and 4 per cent. In reality, banks should be able to survive on an interest margin of 1.50 per cent. (Nation)

intratesjan2009

(source BOT)

Indeed, it’s abnormal… 😉

There is a broken link between the BOT’s repurchase rate, and the situation on the ground (a what rate banks are lending).

But why ? Easy. Lack of competition. And for once, I didn’t say it…

The previous Finance Minister did it. “Competition in banking sector remains weak

Plus, I think, there is the vivid trauma of 1997. Thai banks are not willing to take risks… with a low incentive. Or, they can take risks, but they make everybody paying for it. 😉

This is why, all the calls from the government (Abhisit and the previous ones) for “more lendings” are likely to fail.

Anyway, with the recession, the drop of demand, the banks are unlikely to increase credits. It’s true in Thailand, but everywhere else in the world.

This is a basic and universal rule that Trichet, Paulson, Bernanke, Brown and all the other clowns (policitians) simply do not understand.

At one point, to rely only the power of the verb (“Thou shall lend more, Thou shall spend more”) doesn’t work anymore.

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