Foreign banks in Thailand, including Citibank and HSBC, have started receiving requests for interest-rate options from corporates looking for more sophisticated hedging products. HSBC expects to pull the trigger on its first baht option in the coming months and has already priced several deals for its clients, said an official close to the firm. Much of the demand comes from manufacturers looking to manage loan liabilities. Clients are starting to look at sophisticated derivatives products now because foreign banks have only recently--in the last two or three years--started to move onshore, said a banker in Bangkok.
Pao Chatakononta, senior trader, interest-rates at HSBC in Bangkok, added that clients are looking at interest-rate options because spreads on plain-vanilla products have narrowed making the products cheaper and that "there is a race for reputation among banks to offer more sophisticated products."
An official at Citibank said it is also receiving requests from customers to use interest-rate options for hedging. He declined comment on whether the bank has completed any transactions. An official at Deutsche Bank said it has offered the product for several years and looks forward to more players coming into the market, believing that it will boost liquidity. The official declined further comment.
Interest-rate options can lower a customer's cost of borrowing, said HSBC's Chatakanonta. He added, "If customers believe baht interest-rates will stay low for the next few years, they can take advantage of a steep yield curve to switch from paying a fixed rate into paying a floating rate."
