BANKS PRESSURED ON INTEREST MARGIN

Loan expansion could contract in the second half as economic activity wavers, writes Somruedi Banchongduang

- Somruedi Banchongduang

Thailand's banking industry is expected to face greater challenges in the second half of this year, including slower loan growth and a declining trend for interest income.

As the Bank of Thailand eases its monetary policy, leading to banks reducing their interest rates, Kasikorn Research Center (K-Research) anticipates the net interest margin (NIM) for the sector will continue to decline from 2.92% in the first quarter to 2.83% in the second quarter, dipping to 2.75% in the second half of 2025.

Kanjana Chockpisansin, head of banking and financial sector research at K-Research, said the NIM in the industry has been declining since the second half of 2024, aligning with the central bank's policy rate cuts.

RATE CUTS

The regulator's Monetary Policy Committee (MPC) initiated its easing cycle in October 2024 by reducing the policy rate by 25 basis points (bps) to 2.25%, then maintained the rate at its December meeting.

In 2025, the MPC continued its rate cuts in February and April by 25 bps on each occasion, reducing the rate to its current level of 1.75%. Banks followed suit, cutting both their lending and deposit rates accordingly.

While the reduction in deposit rates has helped ease funding costs for banks, they face pressure from declining loan yields amid limited loan expansion tied to the country's sluggish economic activity, Ms Kanjana said.

The fall in loan yields has been more rapid than the decline in deposit funding costs, particularly for time deposits, she said.

Savings and current account deposits make up the largest share of the total deposit portfolio in the banking industry, accounting for 69%. Fixed deposits with maturities of up to three months, 3-6 months, and 6-12 months account for 5%, 3%, and 17%, respectively.