Deposit wars in Thailand to hurt NIMs in 2H14

But they'll pick up again in 2H15.

As Thailand Banks are resuming their deposit war to attract funding in anticipation of public and private investments later this year, expect net interest margins (NIMs) to drop HoH in 2H14.

According to a research note from Maybank Kim Eng, this is due to the higher funding cost and the high base effect in 2Q14.

Loan-to-deposit ratio (LDR) also hit the 98% level after banks lowered their deposit base to maintain/enhance NIMs in 1H14.

The report noted that it expects LDR to drop after the banks raise funding in 2H14.

Here's more from Maybank Kim Eng:

The policy interest rate is expected to rise in the middle of next year from 2% at present and banks are highly likely to pass it on amid tremendous demand for investment capital next year.

Note that the banks typically will nudge up their interest rates by 50-75bps for every 100bps increase in benchmark rate.

NIMs are expected to improve after banks start to increase their interest rates next year.

Note that most Thai banks have continued to lower their deposit rates in 1Q14.

We saw a significant improvement in NIMs in 2Q14 as many tranches of fixed and special deposits were rolled over at the lower rate.