Record US$26 bil in new deposits is a problem for Thai banks

BANGKOK: Thais are turning to banks as a safe haven, adding deposits at a record pace in the Covid-19 era.

While that’s a vote of confidence, the lenders are likely to face a hard time putting all the funds to good use.

Total deposits at all commercial banks surged by 833 billion baht (US$26 billion) in March, a record for a single month, according to Bank of Thailand data dating back to 2001.

That could signal pressure on net interest margins amid challenging lending conditions, according to Yuanta Securities (Thailand) Co.

There’s less opportunity to find enough borrowers as Thailand faces its deepest economic contraction since the late 1990s.

The pandemic has badly damaged the nation’s traditional drivers, tourism and exports. A lockdown is being eased gradually but still prevents normal business operations.

“While deposit growth has largely been in the low-cost current and savings segment, a lack of opportunities to lend and lenders’ risk aversion could pressure banks’ loan-to-deposit ratios, and consequently hurt margins,” said Diksha Gera, an analyst at Bloomberg Intelligence.

Savings safe haven

Companies have hoarded cash to avoid a “liquidity crunch,” SCB Securities Ltd said in a note.

The operating margin of listed Thai banks narrowed to 30% in the January-to-March period, the lowest level since 2017, according to data compiled by Bloomberg.

As of March 31, Thai bank loans were 92% of total deposits, the lowest proportion since 2009. The stock market gauge of commercial banks is down 1.4% on Friday in Bangkok and has dropped 34% so far this year, outpacing a 16% decline in the benchmark SET Index.

The measure of banking shares dropped 1.9% as of 11.17am in Bangkok, led by Bank of Ayudhya Pcl and Siam Commercial Bank Pcl. The benchmark SET Index fell 0.5%.

That’s not to say Thai banks aren’t seeing new business. Domestic banks’ outstanding loans rose by 224 billion baht in March, the biggest increase since 2017. Some firms have turned to banks because it’s become more difficult to borrow in the corporate bond market.

Even so, new lending accounted for about a fourth of new deposits in March as companies delayed investment and expansion, SCB Securities said. The climb in deposits that month was 39% higher than the combined increase for all of 2019, Bank of Thailand data show.

If history is any guide, major Thai banks won’t lend in haste. Bangkok Bank Pcl, Kasikornbank Pcl and Siam Commercial Bank Pcl were among the few local survivors of the late 1990s Asian financial crisis. That experience made them more conservative than many peers in Southeast Asia.