Moody's says rate cuts to hit Thai banks' margins, profits

[BANGKOK] A rate cut by Thailand's major banks is "credit negative" because it will squeeze net interest margins (NIMs) while funding costs are unlikely to change over the next two to three quarters, Moody's Investors Service analysts said on Monday.

The negative effect on margins would be more pronounced for banks such as Standard Chartered Bank (Thai) Pcl, Bangkok Bank and CIMB Thai Bank Pcl because of their lower risk adjusted NIMs, Moody's analysts said in a statement.

Thailand's four biggest lenders cut their minimum lending rates (MLR) last week saying it would help the flagging economy.

The coordinated cuts were surprising because the central bank had not reduced policy rates since May 2015, Moody's said.

"We do not expect the lending rate cut to materially improve credit demand in the system. We expect economic growth to remain subdued given that an uncertain political environment and high household leverage have negatively affected domestic demand and consumer sentiment," it said.

The Thai banking index has fallen 7 per cent in the past month, making it the worst performer on the Thai market.

Moody's said it expected Thailand to post real GDP growth of about 2.5 per cent in 2016, down from 2.8 per cent in 2015, as the economy shrinks in the wake of paralysing anti-government protests in 2014 that were followed by a military coup.

Banking sector credit growth also slowed to about 4.3 per cent in 2015, compared with an average of 11 per cent from 2010 to 2014.

Given that most loans in Thailand are floating-rate, the rate cut would immediately ease the burden on borrowers, particularly highly leveraged small and midsize businesses, Moody's said.

REUTERS