BoT slaps limits on personal borrowing

BoT slaps limits on personal borrowing

Card issuers feel immediate pressure

The Bank of Thailand is making it harder to get a credit card, cutting each card's limits - but lowering the interest rate on payments to 'only' 18%. (Bangkok Post file photo)
The Bank of Thailand is making it harder to get a credit card, cutting each card's limits - but lowering the interest rate on payments to 'only' 18%. (Bangkok Post file photo)

The Bank of Thailand has tightened rules governing credit cards and personal loans to curb overspending and household debt, including a cut in the ceiling interest rate for swiped cards to 18%.

The new regulations will take effect from Sept 1.

"The tightened regulations on unsecured loans aim to address the issue of financially vulnerable Thai households, reflected from high percentage of household debt, and indebtedness and default of young Thais," said Ruchukorn Siriyodhin, the deputy governor overseeing financial institution stability at the central bank.

She said the regulations strike a balance between accessibility to services and mindfulness of debt-servicing ability and are aimed at those seen as financially vulnerable.

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 from 15,000 to less than 30,000 baht a month; at three times for those earning from 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.

The central bank up to now has set a maximum credit line for cardholders at five times of monthly salary, regardless of income amount.

For personal loans, the current maximum credit line of five times monthly salary will also be changed to a different ceiling credit line depending on salary.

Those who earn less than 30,000 baht will be granted no more than 1.5 times monthly income per creditor, and those earning at least 30,000 baht will be entitled to a maximum five times per creditor.

The new rules on credit lines for personal loans will apply to new borrowers after 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.

The annual interest cap for unsecured personal loans will remain unchanged at 28% to prevent troubled debtors from resorting to loan sharks, Mrs Ruchukorn said.

According to the Bank of Thailand, non-performing loans (NPLs) for outstanding credit cards and unsecured personal loans stood at 2.9-3% at the end of June. The new measures are unlikely to cut bad loans because they will apply only to new applicants.

"Each cardholder owns four credit cards on average, and the card issuers are already cautious about when they will grant additional cards to these holders," said Somboon Chitphentom, the central bank's assistant governor for the financial institutions policy group.

He said the reduction in the ceiling interest rate for credit cards to 18% could shave credit card operators' revenue by up to 4 billion baht a year.

Chutidej Chayuti, chief financial officer at Krungthai Card (KTC), said the central bank's tighter rules will put pressure on loan portfolio expansion and revenue at providers of credit cards and personal loans.

But the impact on this year will be minimal, he said, as the implementation begins on Sept 1. The company is maintaining its target of 10% profit growth for the year.

Typically, KTC adjusts business strategy in line with market circumstances. The cards issuer will monitor the situation before making adjustments in line with the central bank's new regulations and market competition.

"We will improve business potential and search for new markets in order to maintain profitability amid expectations of a decline in interest income due to the lower interest rate ceiling for credit cards of 18% per year," Mr Chutidej said.

Overall, the tougher rules are meant to contain the country's household debt, particularly in the lower-income segment. KTC expects NPLs to fall and the burden of setting aside provisions for loan losses to decline accordingly.

Adisorn Sermchaiwong, senior executive vice-president at CIMB Thai Bank, said the bank has cut its target for personal loan growth this year from the current 10% or more to 5-8% after taking the new regulations into account.

The rule changes will also affect CIMB Thai's retail loan expansion this year. Retail loan growth is likely to be lower than 10%, down from the current projection of 12%.

With the new regulations, the bank will target those earning more than 30,000 baht a month and shift its focus to lending for housing, cars and motorcycles.

The new maximum credit lines will be a boon to smaller banks, Mr Adisorn said.

Sukit Udomsirikul, managing director of Maybank Kim Eng Securities Thailand (MBKET), called the announcement of the new curbs by the Bank of Thailand "nothing new", saying the market had already priced them in to a certain degree.

He said a slump in the price of KTC shares could pose a buying opportunity.

MBKET had revised down its assessment of KTC stock in the past few weeks after word came of a developing plan to curb personal borrowing. The broker has a target price for KTC stock of 114 baht, in line with projections of an expected decline in revenue and profit at KTC.

As the impact will be felt only in the year's final quarter, and considering KTC's strong earnings in the first quarter, MBKET's estimate for KTC's annual earnings has been cut by just 4%, with a greater impact seen on next year's earnings, whose forecast has been cut by 29%, Mr Sukit said.

Meanwhile, Kasikorn Research Center (K-Research) estimates that 750-900 million baht in interest income of banks and non-bank credit card issuers will be pared off in the final quarter from the cut in the maximum interest rate.

But the impact from other regulations is seen as less important because credit lines for cards and personal loans offered by bank and non-bank firms at the moment are on par with the new regulations, the research unit said.

Shortly after the new regulations were announced Wednesday, KTC shares suffered a sell-off, falling 6.50 baht or 5.9% to close at 104 baht on the Stock Exchange of Thailand in trade worth 999 million baht.

Aeon Thana Sinsap Thailand Plc (AEONTS), another stand-alone operator in credit cards and personal loans, saw its share price fall 1.50 baht or 1.4% to close at 103.50 baht in trade worth 1.55 million baht.


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