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25 Jul 2018

Financial Institutions

Solid Growth Seen in June Net Loans, Driven by Corporate and Retail Loans while Deposits Declined (Business Brief No.3753)


​         Net loans overall for June increased over the previous month by THB106 billion to THB11.31 trillion, or 0.95 percent MoM, the highest level in 1H18. When compared to the same period of 2017 and at the end of 2017, June net loans grew 5.02 percent YoY, or 2.23 percent YTD, chiefly at large banks in line with increases in corporate and retail loans while SME loans continued to decline at several banks.

          June deposits slipped from May by THB36.7 billion, or 0.30 percent MoM to THB12.32 trillion. When compared to the same period of 2017 and at the end of 2017, June deposits grew 5.78 percent YoY and 1.86 percent YTD. The MoM decline in June deposits was seen across all banks, in particular those having high excess liquidity, due to the transfer of savings deposits by state enterprises and large businesses, as well as the maturity of 14 special fixed deposits, though they were compensated by the introduction of nine special fixed deposits, with the maturity of not more than one year and slightly higher interest rate of 0.1 percent compared to that seen at the beginning of the year, chiefly by small banks.

            Given this, liquidity overall in the banking system tightened as evidenced by the ratio of gross loan to deposit, plus issued debt and borrowing (LTD+Borrowing Ratio) that soared to the highest level in 1H18 to 87.02 percent, over 85.95 percent recorded in May. This is consistent with the liquid asset to total asset ratio that dropped to 20.98 percent, from 22.30 percent reported for May.     

            In 1H18, loans overall grew higher than expected, thanks largely to favorable exports, which helped bolster loan demand from large businesses. However, SME loans, in particular for small and micro businesses, did not recover as fast as other economic sectors while retail loans grew substantially as expected, especially those having large portfolios, namely home and hire-purchase loans, plus unsecure personal loans (credit and cash cards).  

          Looking into 2H18, we at KResearch expect that loans will continue to thrive over that reported for 1H18, leaning toward our growth target at 5.0 percent, led by corporate and retail loans. Meanwhile, many banks, in particular large banks enjoying high loan growth during 1H18, will likely keep their loan growth targets unchanged, suggesting their cautious stance  as they expect that risks to the Thai economy and business could steepen amid ongoing trade conflicts among leading countries that may dampen the global economic recovery and trigger capital movement volatility.

            This coupled with excess liquidity in the Thai commercial banking system may inhibit banks to compete in offering deposit products with attractive interests. As a result, depositors may attach importance to the service quality and convenience instead. This means that banks will likely compete in developing e-banking services that enable consumers to open an online deposit account by themselves and conduct many transactions via that account at lower fees or no fee because this may have a greater impact on savings in the future.    

Financial Institutions