Bank-to-bank lending and money market operations have been instrumental for commercial banks in managing their surplus liquidity and sources of income amid sluggish loan demand.
Thanachart Bank (TBank) has resorted to interbank and money market activities for managing its financial liquidity, chief finance officer Anuwat Luengtaweekulv said.
The bank's income from interbank and money market operations for the six months to June rose by 10.3% from the full-year of 2016.
"Banks are temporarily parking money in interbank and the money market, waiting for extending loans, and it is a normal practice for liquidity management," he said.
Banks borrow and lend money between each other in the interbank market in order to manage liquidity and meet reserve requirements, while the money market is used by participants as a means for borrowing and lending through trading financial instruments with high liquidity and maturities usually ranging from overnight to less than a year.
Stronger loan demand in the overall banking sector is expected in the second half because of seasonal factors and higher business activities based on a pick-up in the economy.
TBank, the country's sixth-largest lender by assets, managed to expand its total loan portfolio by 0.63% from the end of 2016 to 695 billion baht at the end of June, while auto loans -- the bank's largest loan portion at 355 billion -- grew by 2.86% for the first six months of the year.
The bank's fixed-rate auto loans managed to maintain their interest spread at 3.06% in the second quarter, up from 3.05% in the first quarter.
Mr Anuwat estimated that the bank will keep the 3.06% spread through to the end of this year.
KGI Securities said better liquidity management helped TBank widen its net interest margin (NIM) by six to seven basis points, while large lenders' NIM climbed higher by two to three basis points even though they cut the minimum retail rate in May.
Several banks' interest incomes, generated from their interbank and money market operations, are rising substantially.
During the first half, Bangkok Bank's interest income from interbank and money market items surged by 23.8% year-on-year to 3.77 billion baht, while its interest income from loans fell by 0.4% to 44 billion.
Siam Commercial Bank's interest income from interbank and money market in the first half was 2.53 billion baht, up 26.6% year-on-year. But interest income from loans grew only 0.99% to 47.5 billion.
Kasikornbank's interest income from interbank and money market operations soared by 37% year-on-year to 1.22 billion baht in the six months to June, but interest income from loans dipped by 0.1% to 45.02 billion.