Thai Banks Planning To Announce Increase in Interest Rates

Banks say they plan to announce higher interest rates for mortgages and car loans to deal, with rising finance costs and policy rates.

All financial entities have maintained their benchmark loan rates. However, banks have stopped offering two- or three-year fixed-rate campaigns, switching to six- and twelve-month fixed rates.

According to the Bank of Ayudhya Nathapol Luepromchai’s executive vice president Nathapol Luepromchai, who also heads the mortgage division, the reduction in periods responds to the upward trend in interest rates.

Analysts say the Bank of Thailand may raise its policy rate by 50 basis points this year, while the central bank’s Monetary Policy Committee (MPC) may increase the rate by 25 basis points next month.

Banks are expected to stop offering their existing fixed-rate mortgages for one-year and six-month periods as soon as the MPC decides to raise the policy rate by a quarter point in August, Mr. Nathapol stated.

However, the rising inflation rates’ impact on living costs is a bigger concern than a hike in interest rates, he added.

Mr. Nathapol explained that financing costs for homebuyers would increase by only 0.25-0.5% if the minimum retail interest rate (MRR), used as a benchmark rate for calculating home loans, rises by 25-50 basis points after the increase in the policy interest rate.

Around 2,500 baht, or roughly 208 baht per month, will be added to the loan each year if a borrower takes out a mortgage for 1 million baht and the MRR rises by 0.25 percent annually. As banks may implement flexible terms for monthly mortgage payments in contracts, the additional cost is not anticipated to have a substantial influence on their monthly loan installment payments, he went on.

Meanwhile, Kasikorn Leasing’s managing director Tirachart Chiracharasporn said that higher financing costs for money market entities had caused fixed interest rates for car loan products to rise in recent months.

If the fixed interest rate increases by 10 to 50 basis points, borrowers’ financial costs would increase by 40 to 200 baht per month, he added.

However, Kasikorn Research Center’s deputy managing director Thanyalak Vacharachaisurapol said commercial banks were unlikely to raise their prime interest rates for deposits and loans across the board, as liquidity in the banking system remains high and there is still a need to help customers during the economic recovery.