Charl Kengchon
Liquidity in Thailand's financial markets should see only a slight drop as a result of the government's investment in infrastructure projects worth Bt2 trillion, financial experts said.
The projects will not pull much liquidity out of the market as the government has seven years in which to implement the projects and the borrowing will be gradual, said Charl Kengchon, managing director of the Kasikorn Research Centre.
Ultimately, whether or not the liquidity situation is seriously affected will depend on the pace of project development, but Charl believed the implementation of the projects would be a lengthy process, including open bidding.
The government said that it would gradually issue bonds to finance the investment - which will be implemented over a seven-year period - probably late this year.
At present, the country has liquid assets of Bt2.62 trillion, most of it Bank of Thailand bonds held by commercial banks. Outstanding lending in the commercial banking industry last year was Bt9.6 trillion, of which 70 per cent was corporate lending, according to the Bank of Thailand. Corporate loans last year rose by 10.6 per cent, behind SME loans, which grew 14.7 per cent. Consumer loans last year surged 21.6 per cent due mainly to the first-car scheme.
Overall issuance of corporate bonds hit a record high of Bt509 billion last year, led by commercial banks with Bt180.21 billion, according to the Thai Bond Market Association.
The current level of liquid assets in the country is sufficient to deal with the market demand and to handle demand from the government should it need to borrow from the banks. A shortage, however, might be seen once the economy shows a brighter outlook, because of demand in the private sector for funding to support its businesses, the economist said.
"The chances of a liquidity shortage are low. However, we should monitor the economy's expansion to see whether the huge demand for borrowing will seriously impact on liquidity," he said.
The government plans to raise funds to support the Bt2-trillion projects through the issuance of short- and long-term bonds, as well as through borrowing from local banks. Charl said he does not believe the government bonds will affect corporate bond issuance, because the return from government bonds is not high.
Roong Sanguanruang, chief market analyst at the Bank of Tokyo-Mitsubishi UFJ, said the government does not need to speed up borrowing for the projects, because they have a seven-year timeframe.
She said a liquidity shortage might be seen as economic growth accelerates, as the private sector will require more money to support its businesses. As a result, interest rates will trend upward, she said.
The bank expects the Bank of Thailand to maintain its policy rate at 2.75 per cent until the end of this year and to increase the rate by 25 basis points to 3 per cent in the first quarter of next year.
She suggested that the corporate sector issue bonds to lock in funding costs before interest rates rise.
Weidt Nuchjalearn, a senior executive vice president at Krungthai Bank, said even though the government plans to issue bonds as a fund-mobilisation tool to support the projects, the corporate sector can lure investors through attractive pricing.
Liquidity in the financial system and banking industry is strong, but government projects have prompted deposit mobilisation among banks, as they want to ensure sufficient liquidity and lending reserves in case they decide they want to join the government projects.
Major banks that have current and savings accounts as major portfolios have an advantage over small banks because of their lower funding costs. Therefore, the major banks are able to join the bidding to extend loans to the government, he said.Weidt said the government projects could have a minor impact on liquid assets, but interest rates will likely neither rise nor fall, because that would have an impact on capital fund flows and the strength of the baht.
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Article source: http://www.thethailandlinks.com/2013/03/25/minimal-impact-seen-on-liquidity-analysts/
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