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22 May 2009

Financial Markets

Thai Banking Liquidity in April 2009 Remained High (Business Brief No.2513)

KASIKORN RESEARCH CENTER (KResearch) compiled data on the liquid assets at 14 Thai commercial banks as of the end of April 2009, in comparison with March, and the end of 2008. In detail:
  • Liquid assets (including cash, net investments in the short-term money market and net investments[1], as of the end of April 2009, increased over the values recorded in March. At the end of April 2009, liquid assets totaled THB2.31 trillion, increasing THB44.7 billion over the THB2.27 trillion at the end of March. That increase stemmed primarily from increases in net investments – the main components of liquid assets – followed by cash. Meanwhile, net investments in short-term money market decreased. The increase in liquid assets in April resulted from deposits increasing THB7.96 billion over March, against net loans (after allowances for doubtful accounts) that dropped THB10.2 billion.
  • The increased liquid assets (in the broad definition) came mainly from large banks.[2] Large banks recorded an increase of THB65.5 billion in liquid assets to a total balance of THB1.47 trillion at the end of April 2009. Meanwhile, Small banks recorded an increase of THB433 million in liquid assets, recording a total balance of THB299 billion. Meanwhile, medium-sized banks posted a decrease of THB21.3 billion in liquid assets, reaching a total balance of THB545 billion.
  • Liquid assets in 4M09 increased THB327 billion over the end of 2008, stemming primarily from increases in liquid assets in all banking segments. The large banks recorded the highest increase of THB276 billion. This was followed by small and medium-sized banks that posted increases of THB28.4 billion and THB22.4 billion, respectively.
KASIKORN RESEARCH CENTER (KResearch) views that the Thai banking system's liquid assets (in the broader definition) – totaling over THB2 trillion at the end of April – may be sufficient to accommodate economic activity over the rest of this year, including government borrowing for many economic stimuli programs. However, parties should keep an eye on the course of economic recovery (i.e., domestic and foreign economic indicators, which will affect domestic liquidity, going forward. If the Thai economy shows a solid recovery as expected, loan growth will accelerate, thereby resulting in low liquidity at home.

After the Monetary Policy Committee (MPC) agreed to maintain the policy rate at 1.25 percent at their meeting on May 20, 2009, KResearch views that the downward trend in policy rates may be ending, if economic risks do not worsen. As a result, interest rates at Thai banks may have approached their lowest levels. This low interest rate condition will likely be maintained, until a stable recovery appears. Although such a road of recovery could be rocky and lengthy, once taking place will benefit loan growth and help release excess liquidity of commercial banks. This factor, coupled with a possible increase in liquidity returns in light of the economic recovery, will improve Thai banks' confidence and ability to raise additional deposits through a launch of special long-term fixed deposit products or campaigns.

[1] Liquid assets, in the broader definition, include net investments such as debt/equity instruments held by banks. These instruments may possess different levels of liquidity and cost of exchange for cash.
[2] Large banks include Bangkok Bank, Krung Thai Bank, Siam Commercial Bank and KASIKORNBANK; medium-sized banks include the Bank of Ayudhya, TMB Bank, Siam City Bank and Thanachart Bank, while small banks include Standard Chartered Bank (Thai), UOB (Thai), CIMB Thai, TISCO Bank, Kiatnakin Bank and ACL Bank.

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