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Tarrin warns alien banks over interest

June 10, 1999 -- FOREIGN bank branches in Thailand have been found to be ripping off local customers more cold-heartedly than local banks by charging outrageous interest spreads that have enraged Tarrin Nimmanahaeminda, the finance minister.

''I have instructed MR Chatu Mongol Sonakul, the Bank of Thailand governor, to hold talks with David Procter, the chairman of the Foreign Bankers' Association, about the possibility of narrowing the interest spreads to a more sensible level,'' said Tarrin.

Despite the downward trend of interest rates and ample liquidity in the system, most foreign bank branches in Thailand have been reluctant to bring down their lending rates to ease the burden of their customers or to help stimulate the economy. But they are quick to cut deposit rates during the downward trend in interest rates and ample liquidity.

A survey by The Nation has found that interest spreads -- the differential between the lending rates and the deposit rates -- among the foreign bank branches are kept wide at the expense of the less creditworthy customers.

Most of the foreign bank branches are offering deposit rates at about 2.50 per cent, yet they are charging their prime customers' overdraft accounts 9 per cent to 15 per cent.

For example Citibank charges 9 per cent, Standard Chartered 10 per cent, Bank of America 11 per cent, Deutsche Bank 14 per cent and Sakura Bank 15 per cent.

For customers who are less creditworthy, the minimum retail rates are quoted at 12 per cent by Credit Agricole Indosuez, 14 per cent by Standard Chartered Bank, 14.32 per cent by Citibank and 19 per cent by Hong Kong and Shanghai Bank.

Citibank's retail customers are charged 16.25 per cent for housing loans, 28.5-29.5 per cent for credit cards and 29-31 per cent for personal loans.

Tarrin's concern is the high rates the foreign bank branches are charging their retail customers, who should be getting cheaper rates.

''We'll be looking at ways to narrow the spreads. And they must come down,'' he said.

Thai Farmers Bank, a leading local Thai bank, is charging its customers a minimum lending rate of 8.75 per cent, an overdraft rate of 9.25 per cent and 9.2 per cent as the minimum retail rate.

Interest spreads earlier became a hot political issue after local bankers had been accused of charging their good customers high lending rates to subsidise bad loans and by cutting deposit rates to lower the cost of their fundings.

Thai banks are operating with an average nominal spread of about slightly more than 5 per cent while banking officials would like this rate to hover around 3 to 4 per cent.

Banthoon Lamsam, the chairman of the Thai Bankers' Association and president of Thai Farmers Bank, has come out to express his concern over the social impact of falling deposit rates amid ample liquidity and the near-zero inflation environment.

He said his bank will try to hold deposit rates at 5 per cent, which Tarrin has acknowledged as prudent thinking.

Foreign bank branches are better than their local counterparts in managing funding costs, traditionally relying on the interbank market or funding from their overseas network for domestic lending. With interbank rates falling to between 1.2 and 2 per cent, the foreign bank branches do not find it necessary to have baht deposits.

Citibank's saving rate is zero per cent, amounting to a penalty for savers.




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