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Bank deposits down, mutual funds up amid yield hunt

Yield-hungry investors are rotating their money out of savings accounts and into investment funds and real estate, a trend that has caught the eye the Bank of Thailand, which is concerned about shrinking bank deposits and stability in the financial system.

Bank deposits fell a combined 211 billion baht to end-July from end-April, central bank data shows, following two surprise cuts in the central bank's policy rate in March and April to near record lows.

In the same period, inflows into mutual funds rose about 94 billion baht, including 55 billion baht in fixed-income funds, according to the Association of Investment Management Companies.

Data from the association shows total return on one fixed-income fund is at 2.75% year-to-date, and the return on one fund investing in Japanese stocks is about 13%.

By comparison, big banks offer savings rates at 0.5% and one-year deposit rates at 1.5%, down from 1.75% at the start of the year. Minutes of a central bank policy meeting on Sept 16 also noted speculative fund flows into the condominium market.

"As interest rates have been low for a while, we started to see a shift of deposits to other investments, especially mutual funds," Don Nakornthab, senior director of the central bank's Financial Institutions Strategy Department, told Reuters. "This is one reason why the Monetary Policy Committee still keeps rates steady."

The MPC has left the policy rate unchanged in the last three reviews.

Southeast Asia's second-largest economy has been stuck in a low gear since the May 2014 coup, with exports and domestic demand persistently weak. Consumer confidence fell for the ninth successive month in September to a 16-month low.

www.bangkokpost.com/print/727068/