Thailand
Thailand: Banks signal higher interest rates on the horizon
Banks have indicated higher interest rates are planned for mortgages and auto loans in response to rising financial costs and a policy rate hike.
However, all banks have maintained their benchmark loan rates.
Nathapol Luepromchai, executive vice-president of Bank of Ayudhya, who heads the bank’s mortgage division, said banks have begun to stop offering two-year and three-year fixed-interest rate campaigns, switching to fixed rates for 12-month and six-month periods. He said this move is in line with the upward trend of interest rates.
Analysts expect the Bank of Thailand will raise its policy rate by 50 basis points this year. The central bank’s Monetary Policy Committee (MPC) is expected to raise the rate by 25 basis points at its next meeting in August.
If the MPC decides to hike the policy rate by a quarter-point in August, banks are expected to stop offering their existing fixed-rate mortgages for one-year and six-month periods, said Mr Nathapol.
However, the rising inflation rate, which is reflected in higher living costs, is a greater concern than an interest rate hike, he said.
If the minimum retail interest rate (MRR), a benchmark rate for housing loan calculations, increases by 25-50 basis points following a policy rate hike, financial costs for homebuyers will increase by only 0.25-0.5%, while construction material costs have jumped 7-10%, said Mr Nathapol.
If a homebuyer takes out a mortgage of 1 million baht and the MRR increases by 0.25% per year, this will add 2,500 baht per year to the loan, or around 208 baht per month.
The additional cost is not expected to have a significant impact on their monthly debt instalment payments as banks could adopt flexible conditions for monthly mortgage payments in contracts, he said.
Kasikorn Leasing’s managing director Tirachart Chiracharasporn said fixed interest rates for auto loan products have been rising the past few months because of banks’ higher financial costs in the money market. On average, if the fixed interest rate increases by 10-50 basis points, borrowers’ financial cost will increase by 40-200 baht per month, he said.
Thanyalak Vacharachaisurapol, deputy managing director of Kasikorn Research Center, said the centre predicts commercial banks are unlikely to increase their prime interest rates for both deposits and loans across the board immediately after a central bank rate hike, instead opting for a selective basis.
She said the banking system’s liquidity remains high and there is still a need to assist customers during the economic recovery.
Ms Thanyalak said smaller banks have offered high interest rates for long-term fixed-rate deposit campaigns. Some have started to increase interest rates for auto and mortgage loans in various campaigns, she said.
“However, rising interest rates for car and home loans will not impact consumers broadly because these buyers have higher purchasing power than the lower-income segment,” said Ms Thanyalak.
The central bank’s senior director for the economic and policy department, Sakkapop Panyanukul, said at a recent analysts’ meeting commercial banks have begun to react to a possible policy rate hike by adjusting interest rates on some products.
He said signs of economic recovery are clearer, but the rebound is gradual. Some sectors are still vulnerable, especially low-income households and small and medium-sized enterprises suffering from rising costs.
The central bank issued previous measures to ease the financial burden for vulnerable borrowers and allow them to better access funding sources, especially recovery loans and long-term debt restructuring programmes.
Surach Tanboon, the central bank’s senior director for the monetary policy department, said real interest rates would increase in accordance with economic fundamentals.
The Economic Intelligence Center (EIC), a research house under Siam Commercial Bank, reported outstanding corporate bonds in the second quarter of this year increased by 10.7% year-on-year. Listed companies have rushed to issue bonds before the upcoming rate hike cycle in the second half of the year. During January to May this year, total corporate bond issuance stood at 552 billion baht.
The EIC forecasts new corporate bond issuance in 2022 to exceed 1 trillion baht for the third time.
Bond issuance in 2019 totalled 1.08 trillion baht and last year it tallied 1.03 trillion.
Source: https://www.bangkokpost.com/business/2338323/banks-signal-higher-interest-rates-on-the-horizon