Rising interest rates have not yet affected domestic loan demand despite corporate loans slowing because of the global economic outlook, according to the Bank of Thailand.
Piti Disyatat, assistant governor for the monetary policy group at the central bank, said Thailand's financial conditions are tightening based on interest rate hikes, but they remain accommodative and have not yet diminished loan demand.
Banks have been financing small and medium-sized enterprises, particularly in the trade and service sector, to aid in the recovery of these businesses, according to the regulator.
The central bank said the banking industry approved new loans for the trade and service sector at a higher rate of 47.2% in the fourth quarter of last year than the manufacturing sector, which tallied 41.8%.
The Bank of Thailand has increased its policy rate four consecutive times, each by 0.25 percentage points, with the latest hike in March taking the policy benchmark rate to 1.75%.
In response, commercial banks have passed through the minimum lending rate (MLR) increase by 68%, compared with 56% in the past.
The pass-through of the minimum retail rate (MRR) is only 44%, down from 63% in the past, according to the central bank. This gradual increase in MRR by banks aims to support the ability of individual borrowers, who are a vulnerable segment, to repay their debt.
Last week, large local banks increased both loan and deposit rates following the policy rate movement. The MLR of large banks is in a range of 6.6% to 7.025% per year, while the MRR is 6.8% to 7.18% and the minimum overdraft rate is 6.875% to 7.15%.
"Financing costs for both businesses and individual borrowers has increased, but it has not affected the loan demand of borrowers," said Mr Piti.
He said corporate loan demand is slowing, in line with the global economic outlook, with large corporate firms shifting from bank loans to bond issuance because of lower funding costs.
Despite this, business operators still have access to funding sources as interest rates climb.
According to the central bank's statement, Thai bond yields have declined slightly in tandem with US Treasury yields, and financial conditions have tightened somewhat from higher private sector funding costs related to higher policy interest rates.
However, financial conditions remain supportive of fund mobilisation by the private sector amid the ongoing recovery, as bank lending and corporate bond issuance continue to expand, said the central bank.
Although uncertainties surrounding the monetary policy of the Federal Reserve and European Central Bank have kept global financial markets volatile, the impact on the Thai financial system has not been significant.
Local financial institutions and corporations have limited linkage with troubled banks and risky assets, while they have maintained high levels of capital, according to the Bank of Thailand.
