Rising bank deposits and lower borrowing activity are bad signs for the economic environment as a sharp deterioration in global economic outlook impinges on the Thai economy. All now hinges on both the continued recovery of foreign tourism and a second-half projected recovery in exports to an increasingly troubled and divided world.

The Bank of Thailand at its recent Monetary Policy Committee meeting downgraded the kingdom’s growth forecast to 3.6% and warned that the danger of a global shock to the international financial system had risen as it promised to continue its policy of gradual rate rises. This week, figures released by the Stock Exchange of Thailand (SET) listed banks in the kingdom, showed a slowdown in loan growth and an uptick in deposits as local investors moved to keep holdings in cash as the global economic outlook deteriorates with Thai manufacturers and exporters facing a sharp falloff in business with the country’s economic recovery challenged despite a return of foreign tourism demand.

Thanyalak Vacharachaisurapol (centre) the Deputy Managing Director of Kasikorn Research Centre whose firm this week commented on slower-than-expected borrowing by Thai firms and businesses as figures from Stock Exchange of Thailand (SET) listed banks showed a marginal drop in outstanding loans in the opening three months of 2023. At the same time, deposits have gone up by 3.53% as firms take advantage of rising interest rates by liquidating bonds and mutual fund holdings. The challenging situation comes with a sharp drop in exports, an amended projected growth rate of 3.6% for 2023 and a warning from the Bank of Thailand of an increased risk of a shock to the global financial system as the world battles against weaker trade, increased geopolitical tensions, elevated inflation and rising borrowing costs.

Investors in Thailand have begun to move holdings into bank deposits as interest rates rise and are predicted to continue to do so for the foreseeable future.

The change is coming amid increasing concern for the global economy and the long-term economic outlook as Thailand’s economic recovery faces headwinds despite a surge in the country’s foreign tourism industry.

The Bank of Thailand has recently cut back the country’s economic growth forecast for 2023 to 3.6% as its March Monetary Policy Committee indicated that the cautious and gradual approach to raising interest rates that it has been pursuing will continue over the coming months.

Notes of the March Monetary Policy Committee suggest a further rise of 25 basis points to 2% may come in May but there is uncertainty after this

The notes of the last Monetary Policy Committee meeting suggest that a further 25 points rise in interest rates can be expected in May although the committee made a note of a deterioration in global economic conditions and outlook including a more fragile international banking system with the risks of some sort of shock rising.

After May, the situation is more uncertain, dependent on export demand projections and developments internationally regarding the global economy which is currently beset with disquiet and unprecedented challenges.

The committee also had an eye towards the threat of inflation in the kingdom which fell to 2.83% in March, the first time since 2021 that it has been within the bank’s targeted range of 1% to 3% with a reduction also in core inflation.

Bank cautions also on inflation threat

The Bank of Thailand was also notably cautious in its recent statement on the continued threat of inflation which remains elevated.

‘There remains a risk of inflation staying elevated for longer than expected, as firms could pass on higher costs absorbed in the past and demand-side pressures could pick up,’ the bank said in a statement again suggesting that interest rates in Thailand look likely to continue to rise.

The Thai inflation rate of 2.83% compares with a US inflation rate of 5% in March, a marked decline and ahead of expectations leading some US observers to predict that the United States can expect to see inflation within its targeted range by the end of this year although there are sceptics who point to a core inflation rate of 5.6% in February which excludes fuel and food costs and further threats due to geopolitical instability.

Push by Russia, China and an aligned bloc to challenge the consensus of Western power and especially the United States producing a divided world economy

These threats include proposed cuts in oil output by the Organization of the Petroleum Exporting Countries (OPEC) and what now appears to be a concerted push by Russia and China to damage the international, western-dominated economic order led by the United States.

This is leading to a hitherto unprecedented divided world economy which is taking on a shape before economic observers with implications for supply chains, banking systems and future markets, a situation being exacerbated by the Russian-Ukraine War and changes to an economic policy also being dictated by Climate Change policy in western countries.

The troubled nature of the Thai economic recovery, now led and kept alive by gains in foreign tourism, can also be seen this week in data from the country’s 10 banks listed on the Stock Exchange of Thailand (SET) in Bangkok.

Bank loans at the end of March 2023 were down marginally from the end of 2022 as businesses in manufacturing and exports got cold feet on borrowing

The data showed that the publicly listed Thai banks had a total outstanding loan portfolio of ฿12.9 trillion, down very marginally by 0.04% from the end of 2022.

The figure suggests a definite change in the environment and coincides with a sharp fall in Thailand’s exports at the end of 2022 which has severely impacted the country’s manufacturing and export-based sector which accounts for over 60% of GDP.

Kasikorn Research Centre has projected a loan growth rate of between 3.5% and 4.7% in 2023 but this projection is now based on the 17 banks which are registered in Thailand and a promised recovery in exports in the second half of the year.

Five of the top banks, led by Siam Commercial Bank at 2.98%, reported marginal or challenged loan expansion in the first quarter while the other five reported no growth at all or even a contraction of their loan books.

Kasikorn Research Centre which had initially predicted between 1.9% to 2.3% expansion in loan books for 2023, issued a statement through Deputy Managing Director Thanyalak Vacharachaisurapol saying the performance had been lower than expected and attributed the change to more difficult conditions which have hit Thailand’s economic recovery from external sources.

Businesses are hedging their bets in an increasingly dangerous environment while keeping funds in bank deposits which have risen by 3.53% in 3 months

Ms Thanyalak explained that Thai business leaders are monitoring the economic situation both inside and outside Thailand as they hedge their bets on further investment.

No upturn seen from China say Thai exporters with nine months in a row of declining output

Exporters are also looking at declining order books as the falloff in export output, according to the Thai National Shippers’ Council, is forecast to continue well into the second quarter of the year.

Figures from the 10 banks were led by the growth of the loan book at Siam Commercial Bank at 2.98% and bookmarked by a loan contraction for the opening 3 months of 2.64% at Land and Houses Bank.

At the same time, the banks posted an expansion of deposits of 3.53% for the period.

At the end of the first quarter, the banks had total deposits of ฿14.7 trillion rising from ฿14.2 trillion since the end of 2022.

Ms Thanyalak attributed this rise to higher interest rates and suggested that the funds deposited are being moved from mutual funds and bond holdings held by local investors in Thailand.

‘Investors are shifting their assets from mutual funds or bonds to bank deposits for safety amid volatility in money and capital markets worldwide,’ she concluded.

Join the Thai News forum, follow Thai Examiner on Facebook here
Receive all our stories as they come out on Telegram here
Follow Thai Examiner here

Further reading:

Recession fears rise as growth projections are cut and export output continues to decline in 2023

Good news on foreign investment at the start of 2023 fails to mask stunted competitiveness issue for economy

Economy faces export clogs with rules in China and ‘green imperialism’ from European Union

Vital European Union free trade deal with Thailand with stiff demands from Brussels to take time

Thailand’s financials are sound but the economy is exposed if another world banking crisis emerges

Thai economic woes grow with a 10-year high trade deficit as January exports slumped by 4.5%

Credit crunch as firms seek more bank loans with tightened lending criteria and recession fears

Even as the baht surges, Thailand faces economic recession in mid-2023 with lower earnings

Soaring baht as the Thai economic spirit rises with one of the world’s lowest levels of inflation

Thailand in direct trade talks with 12 Indian states which could also boost the tourism industry here in 2021

World’s biggest free trade deal just signed will be a huge boost for the Thai economy and exports

Thailand’s trade agenda may be complicated and thwarted by raised tensions in the Indo Pacific region

RCEP deal agreed as India opts out – busy Bangkok ASEAN summit concludes on a low key

US is a better friend for Thailand than China says US ambassador as tensions grow between the 2 powers

Prime Minister indicates that the cabinet reshuffle will be complete very shortly with no problem

Thailand’s economy has become dependent on government expenditure to stay above water

Industry boss urges Thailand to join alternative Pacific trade pact and plan for a long recovery from virus debacle

MPs warned of an economic colony as opposition zeroed in on Thailand’s impaired relationship with China

US suspension of Thai preferential trade partner status part of Trump’s ongoing trade war