SCB, GSB out in front with rate easing

SCB, GSB out in front with rate easing

Swallowing lower profits to help SMEs

Siam Commercial Bank (SCB) and Government Savings Bank (GSB) have taken the lead in passing on the central bank's rate cut to customers, putting pressure on the lenders' profits.

SCB will pass on the Bank of Thailand's 25-basis-point rate cut in full, trimming the minimum retail rate (MRR) to 6.87% and fixed deposit rates across the board, effective today.

The bank wants to lower operating costs for small and medium-sized enterprises and retail borrowers to offer a cushion against impacts from the trade spat and tepid domestic consumption, said chief executive Arthid Nanthawithaya.

From Nov 11, state-owned GSB will slash prime lending rates by 12.5 basis points but keep deposit rates unchanged.

After the rate cut, GSB's MRR and minimum overdraft rate will be 6.745% and the minimum lending rate will be 6.375%.

Chatchai Payuhanaveechai, GSB's president and chief executive, said the bank will leave deposit rates unchanged until early next year.

Other banks are expected to follow the pair's lead.

The moves came one day after the Monetary Policy Committee (MPC) voted to cut the policy interest rate, matching the record low of 1.25% during the 2009 global financial crisis, in an effort to nudge growth along and support a targeted increase in headline inflation.

Finance Minister Uttama Savanayana said interest rate cuts will be a boon to domestic investment because operators will shoulder lower costs, benefiting the overall economy.

The rate reduction bodes well for the country's economic sentiment, but other measures to propel momentum are needed, he said.

Mr Uttama downplayed criticism from some economists that the central bank's relaxations on capital outflow regulations would not help rein in the stronger baht, saying looser rules could weaken the local currency.

The Bank of Thailand has relaxed regulations related to exporters' foreign currency proceeds and foreign securities investment to encourage capital outflows and curb the baht's strength. Moreover, the central bank's second rate cut this year is also expected to help reduce the baht's attractiveness and ease upward pressure on the currency.

The baht is the top-performing currency in Asia, gaining more than 7% against the US dollar this year, on safe-haven perceptions given the Thai economy's high current account surplus and foreign reserves.

Somprawin Manprasert, chief economist at Bank of Ayudhya, agreed that the policy rate cut would help support momentum and prevent structural risks.

The bank, however, is maintaining 2019 and 2020 economic growth forecasts at 2.9% and 3%, respectively.

The government has fiscal policy space but should focus on quality rather than quantity to boost economic growth, he said.

Every 25-basis-point cut in the lending rate will carve 3.8% off banking profits, Asia Plus Securities estimates.

"Policy rate reduction will be followed by commercial banks' lending rate cut, which will deal a blow to interest income and net interest margin," the brokerage house said in a research note.

Large banks that are net lenders in the money market, namely Bangkok Bank and Krungthai Bank, will see the biggest impact, while Kasikornbank and SCB will be hurt by effects on their insurance subsidiaries, it said.

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