Moody's: BoT personal loan limits will benefit banks

Moody's: BoT personal loan limits will benefit banks

The Bank of Thailand's measures aimed at tightening personal unsecured lending will benefit Thai banks as it strengthens underwriting standards and will moderate growth in the personal-loan segment, which has contributed to the high level of household debt and an increase in non-performing loans (NPLs), according to Moody's Investors Service.

The new limits will discourage further leverage among these borrowers, and ease their debt-servicing burden, the international credit rating agency's report said.

According to the Bank of Thailand's 2016 Financial Stability Report, household debt was 79% of GDP at the end of March. Debt growth was slower in 2016 than in 2015, but still outpaced income growth, especially for low-income, agricultural households and households operating small and mid-size businesses.

"The banks we rate that would most benefit from the new regulations are CIMB Thai Bank (Baa2 stable, ba22) and Bangkok Bank (Baa1 stable, baa2), which had the highest growth rates in personal and credit card loans in 2016. CIMB Thai in particular will benefit because it has the highest share of these loans in its portfolio. The new income-based credit caps will limit banks' exposure to these higher-risk loans," the report stated.

According to a new set of regulations governing credit cards, the maximum interest rate will be lowered to 18% from 20% at present, in line with card operators' lower financial costs. The new rate will apply to both new and existing cardholders.

The credit line of a new cardholder will be capped at 1.5 times monthly income per card for those earning 15,000 to less than 30,000 baht a month; at three times for those earning 30,000 to less than 50,000; and at five times for those earning 50,000 baht or more.

In an emergency, however, cardholders can still request a temporary increase in credit line depending on their income, Mrs Ruchukorn said.

The new rules will affect those who apply for credit cards from Sept 1.

Those earning below 30,000 baht a month will be limited to three personal loan creditors, while there is no restriction in terms of the number of creditors in the case of those earning 30,000 baht and higher a month.

In an emergency, borrowers can ask creditors for additional credit at a maximum of five times monthly income.

"We expect loans to small and mid-size enterprises [SMEs] and unsecured personal loans, which are mainly issued to SME owners for business purposes, to remain the weak spots in the system, despite a recovery in exports and stabilisation of household leverage that point to gradual improvements in broad economic conditions," Moody's said.

Personal and credit card loans accounted for 9% of total loans at the end of March. These loans historically have poorer asset quality relative to secured loans. Credit card loans had an NPL ratio of 4.1% at first-quarter 2017, while personal loan NPLs stood at 2.8%, the report said.

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