Bangkok Bank sees interest rates flat to end-2009

BANGKOK, Sept 3 - Thailand's top lender, Bangkok Bank, said on Thursday commercial bank interest rates were likely to hold steady until the end of this year but could move up if funding needs showed clear signs of recovery.

"Liquidity in the money market is expected to be fine, even though a series of state savings bonds have been launched. So domestic interest rates should be flat at least until the end of this year," Executive Vice President Piyapan Tayanithi told reporters.

"They should not go lower than the current level and should tick up, for example, if funding needs come back."

Thailand's commercial banks have not made a major move in their deposit and lending rates since May.

The Bank of Thailand has left its key interest rate at 1.25 percent since May and Deputy Governor Atchana Waiquamdee told Reuters on Thursday the central bank would not raise it until it was sure the economic recovery was sustainable.

Most major banks' savings rates are now 0.50 percent, fixed deposit rates are at 0.65-1.50 percent and their minimum lending rate is at 5.850 percent.

The steadiness of interest rates has helped control bad debt, Piyapan said.

"If loan demand doesn't come back that fast, pricing should not increase. Consequently, asset quality should be fine and not beyond our control," Piyapan said.

Fitch said on Monday that bad debt at Thai commercial banks would swell to 10 percent of total lending by the end of this year from 7-8 percent in the first half, pushed up by weakness in the economy.

Bangkok Bank has revised its forecast for gross domestic product this year, now expecting it to shrink by 2.8 to 3.6 percent, cut from its forecast of a zero to 2 percent contraction in March, Piyapan said.

"It should start to move in a positive direction in the fourth quarter of this year and continue next year," he said, adding the bank expected the economy to grow 2-4 percent in 2010.

Last week, the state planning agency that compiles the GDP data said the economy would contract 3.0-3.5 percent this year. Economists polled by Reuters have forecast 3.8 percent. ($1=34.03 Baht)