Thanachart Bank (TBank) expects its interest margin will not be affected by its recent lending rate cut, thanks to the domination of fixed-rate car loans in its portfolio.
The rate cut will not take a toll on the bank's interest income because car loans amount to 365 billion baht or 51.2% of its outstanding loans of 754 billion baht, said chief executive Somjate Moosirilert.
Moreover, TBank's auto leasing subsidiary, Ratchathani Leasing Plc, will support the bank's interest income, he said.
Ratchathani's loan portfolio totals 20 billion baht and the company typically charges borrowers at higher rates than the bank because it finances used cars, he said.
Despite sluggish extension of new loans amid the stuttering economy, TBank is expected to be able to maintain its interest income, Mr Somjate said.
A man walks past Thanachart Bank's Lat Phrao branch. The bank believes its recent lending rate cut will not affect its interest income. WICHAN CHAROENKIATPAKUL
The bank's interest spread between deposits and lending improved to 2.84% at the end of last year from 2.68% at the end of 2014, due largely to efficient funding cost management. TBank trimmed its minimum lending rate by 25 basis points following rate reductions led by big players to help relieve the financial burden of borrowers and boost the country's economic growth.
Moody's Investors Service recently warned that recent cuts in banks' lending rates are credit-negative because they will narrow their net interest margins, given that banks' funding costs are likely to remain unchanged over the next two or three quarters.
"Typically, auto loan business is resilient to rate cuts because it charges borrowers fixed rates, but it takes a hit from interest rate hikes," Mr Somjate said.
"Funding cost management is the key factor to help stabilise interest income."
TBank, the country's sixth-largest lender by assets, lowered interest expenses by 4.34 billion baht or 17.47% last year.
The bank's cost of funding stood at 2.52% last year, down dramatically from 2.89% in the previous year. It improved to 2.61% in the second quarter from 2.76% in the first three months, falling to 2.43% in the third quarter and 2.29% in the final quarter, according to its 2015 breakdown.
Its interest spread widened to 2.86% in the second quarter from 2.74% in the previous three months before reaching 2.88% in the third quarter and 2.87% in the fourth quarter.
Net interest income amounted to 27.7 billion baht in 2015, up from 27.6 billion in the year before.