KTC chief forecasts tough 2018
Country's leading credit lender sees stricter regulations by the central bank weighing on its growth
Krungthai Card expects earnings to splutter next year as the Bank of Thailand's tougher regulations on credit cards and personal loans, particularly the reduction of the ceiling interest rates for credit cards to 18% from 20%, take a bite out of KTC's income.
The country's leading provider of credit cards and personal loan services estimates the interest rate limit alone will shave 700 million baht off income for one year.
"We want to maintain profit growth, but the worst-case scenario is flat growth," Rathian Srimongkol, president and chief executive, said in an exclusive interview with the Bangkok Post. "How much growth we can achieve is another issue. I guarantee double-digit profit growth next year is impossible."
KTC's normal business growth contributes at least 300 million baht to the company, while cutting operating costs will help keep its profit from falling, said Mr Rathian.
New technology is one tool KTC can use to trim costs, he said.
KTC's net profit has constantly surged over the past six years. The company posted a net profit of 1.28 billion baht in 2013, jumping to 1.75 billion in 2014, 2.07 billion in 2015 and 2.49 billion last year.
For the six months to June, KTC's net profit rose to 1.52 billion baht from 1.21 billion in the same period a year earlier.
Credit card business contributes 55% to the company's revenue -- the bulk of which is interest income -- and personal loan makes up for the rest. KTC has 3 million accounts, of which 2.3 million are credit cards and the rest personal loans.
"Tracking back over the past six years, our lowest growth of net profit was 300 million baht. But we need to do more to maintain profitability," said Mr Rathian.
According the new regulations, effective from Sept 1, the new interest rate -- which is reduced to 18% from 20% per year -- is applied to both new and existing cardholders.
Credit lines for new credit cardholders is 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.
But in an emergency cardholders can still request a temporary increase in credit depending on their income.
For personal loans, 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.
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 for 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.
Even though the new regulations are expected to weigh on KTC's growth, they come as a boon to the overall industry, as they alert people to be more cautious in spending, said Mr Rathian.
"If you're asking me whether the central bank's [measures] have been successful, they have to a certain degree, as seen by the fact that cash advances, which had previously expanded at double-digit or high single-digit rates, are now shrinking," he said.
Over the past several months, cash advance growth of KTC credit cards have shrunk 1-2% per month, the first such contraction in six years.
While the central bank implemented the new rules on Sept 1, it signalled to the market about the tightened regulations several months in advance, allowing consumers to adapt accordingly.
The Bank of Thailand's new regulations have both pros and cons, said Mr Rathian. The regulations are forecast to affect the overall unsecured loan industry and KTC in two main areas -- interest income of credit card business and new customer acquisitions for personal loans in lower-income segments. But asset quality is set to improve because of the higher financial discipline of borrowers.
"We think that our non-performing loans (NPLs) have almost hit bottom, but they will decline further because of strong risk management. So NPLs will continue falling, given the central bank's new regulations and the company's risk management efforts," he said.
As of June this year, KTC's NPLs for credit cards were 1.22% and personal loan were 0.88%.
But Mr Rathian said it is the first year when card spending for both KTC and the overall industry expanded in single digits. He added that KTC's card spending is still growing at twice the industry pace. To avoid the effects from the narrowing personal loan market for low-income earners, KTC is focusing on the high-income market, he said.