Thai banks interest rates too high

Tarisa Watanagase, governor of the Bank of Thailand, will hold talks with commercial banks about interest spread reduction, following the Finance Ministry's call for banks to lower their service charges and interest spread.

The difference between the payment interest rate and the net interest margin is 2.9 percent.The rate in Indonesia stands at 5 percent, Philippines at 4 percent and South Korea at 3.1 per cent, but Malaysia and Singapore's rate is lower at 2.2 per cent.

The gap can still be narrowed and the central bank and commercial banks will have to find ways to lower their operating costs to help reduce the overall economic cost.

The NIM (net interest margin) of commercial banks was higher in the past and it would take time to lower their operating costs.

The governor said the BoT had implemented flexible measures to help banks lower their operating costs, such as allowing banks to improve the non-performing assets before selling them.

On the overall economy, Mrs Tarisa said the country's gross domestic product in the first half of 2010 could increase 10 per cent year-on-year.

"A 10 per cent growth is possible as the country's economy in the second quarter kept on expanding from the first quarter at 12 per cent. Growth is expected to continue in the second half of the year," Mrs Tarisa said.

She said the GDP growth for the entire year should be 6.5 to 7.5 percent,as the central bank projected earlier. All sectors should see improvement, especially the export sector as it had recently shot up 40 per cent.

Public consumption and spending had rebounded to almost the level before the political turbulence, and the government had continued spending to bolster the economy. Private sector investment had risen but was not as high as in 2008, she said.

As for internal and external factors affecting the Thai economy, she said the political situation in the country will still be the main influencing factor while the public debt crisis in Europe had eased.

Finance Minister Korn Chatikavanij instructed the Thai Bankers' Association and Bangkok Bank president Chartsiri Sophonpanich to arrange a meeting between him and top bankers to discuss plans to lower service fees and reduce the interest spread.

The BoT is responsible for trimming the banks' service charges and interest spread, he said.