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Finance minister says profit is not their goal
WICHIT CHANTANUSORNSIRI
Specialised state banks must cut their interest rate spreads to no higher than two percentage points, or half their current spreads, says Finance Minister Surapong Suebwonglee.
He also ordered state banks to delay the implementation of the new global accounting standard known as IAS39 indefinitely.
The new policies will apply to state banks such as the Government Housing Bank, the Bank for Agriculture and Agricultural Co-operatives and the Government Savings Bank.
"Right now, specialised state banks have rate spreads of around 4% between their loan and deposit rates. That's just too much profit," Dr Surapong said.
"We can bring the [spreads] down to 2%, while still keeping the banks profitable."
Cutting interest rate spreads suggests that state banks will either raise their deposit rates, reduce loan rates, or a combination of the two.
"In principle, the state banks are not supposed to be profit-oriented in the first place. Cutting rate spreads won't cause the banks to slide into a loss. Each of these banks has room to improve their efficiency to maintain profitability," Dr Surapong said.
The policy comes even as interest rates for the overall market have risen in light of tighter monetary policy by the Bank of Thailand.
The central bank last week raised its one-day repurchase rate by a quarter-point to help curb inflation, now running at a 10-year high due to high food and oil prices.
While the new policy for state banks will have no direct impact on commercial banks, competitive pressures will certainly have an impact on the overall market. GH Bank, for instance, is the country's largest mortgage lender and competes directly with many top commercial banks.
And although the new interest rate spread policy for state banks will put them at a disadvantage in profitability relative to their private competitors, the delay of IAS39 is a clear advantage.
Commercial banks, regulated by the central bank, have adopted the stricter IAS39 standard since last year. The rule imposes tougher provisioning requirements for different types of assets and collateral, and has forced local banks to increase their loan-loss reserves across the system.
State banks, which are regulated by the Finance Ministry, had been set to adopt IAS39 starting in 2009.
But the minister suggested that given the slow economy, the timing was not right to impose stricter regulations and regulatory costs on state banks. "Let me be clear. The Finance Ministry will use state banks as an instrument of the state to help stimulate growth as the economy continues to slow," he said.
"State banks must help their customers survive, not simply allow them to become non-performing loans that ultimately will undermine the entire system."
Dr Surapong said he would meet with the top executives of the specialised state banks next week to discuss the new policy.
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