Large local banks have lowered their interest rates in response to the Bank of Thailand's recent policy rate cut, a move that is expected to compress the banking sector's net interest margin (NIM) this year.
Domestic systemically important banks (D-SIBs) reduced interest rates following the central bank's policy rate cut of 25 basis points (bps) on April 30, bringing the benchmark rate down to 1.75%.
Thailand's six D-SIBs are Bangkok Bank (BBL), Krungthai Bank (KTB), Kasikornbank (KBank), Siam Commercial Bank (SCB), Krungsri (Bank of Ayudhya) and TMBThanachart Bank (ttb).
BBL, the country's largest lender by total assets, led the industry by cutting both deposit and lending rates effective as of May 8. Subsequently, KTB, KBank, ttb and Krungsri followed suit, with their rate cuts taking effect yesterday.
These banks lowered prime lending rates across the board by 0.05 to 0.15 percentage points. As a result, their minimum loan rates now range between 6.75% and 7.40% per year.
Minimum overdraft rates are in a range of 6.87% to 7.20%, while minimum retail rates are between 6.90% and 7.55%.
In addition to lending rates, savings and fixed deposit rates were also reduced.
According to Kasikorn Research Center (K-Research), the latest round of rate cuts by banks will primarily benefit mortgage, business, and other consumer secured loans, which collectively account for 56.6% of the banking industry's total outstanding loans.
"These lending rate reductions will ease the financial burden of retail and business borrowers by around 4.4 to 4.9 billion baht between May and December this year," said Kanjana Chockpisansin, head of research for banking and finance at K-Research.
With the central bank in an accommodative monetary policy cycle and amid global uncertainty stemming from US trade policies, K-Research expects the Bank of Thailand to cut its policy rate once more this year by 25 bps.
This would bring the rate down to 1.5% by year-end, further pressuring banks' NIM, noted the centre.
Following three policy rate cuts since October 2024, the industry's NIM has declined over that period, falling to an average of 2.92% in the first quarter of this year.
Ms Kanjana forecast the banking industry's NIM to dip to 2.83% in the second quarter this year, potentially dropping to 2.75% in the second half of the year if another rate cut materialises.
To manage funding costs and maintain NIM, banks have been adjusting their deposit structures by shortening the maturities of fixed deposit campaigns.
Savings and current accounts make up 69% of the total deposit portfolio in the banking sector, according to K-Research.