Bankers address credit risk alarm

Bankers address credit risk alarm

Zero-rate campaigns driving personal debt

A mobile phone shop touts zero-rate offers. (Photo by Pornprom Satrabhaya)
A mobile phone shop touts zero-rate offers. (Photo by Pornprom Satrabhaya)

The Thai Bankers Association's credit card club plans to discuss its concerns about credit risk from zero-rate marketing campaigns with the Bank of Thailand.

Shoke Na Ranong, executive vice-president for Bangkok Bank's credit card division, said the club is in preparation to talk to officials about the central bank's criticism of zero-rate campaigns in the credit card business.

The central bank has blamed zero-rate marketing campaigns for the country's swelling household debt, saying it could deter consumers' debt-servicing ability.

"The Bank of Thailand has comprehensive information on the country's overall credit card market, and the regulator may see some risky areas pertaining to the loan segment," Mr Shoke said. "Business operators have shared information with the central bank as well."

In the event that the central bank asks credit card providers to pull back on such campaigns, the banks will comply with the request, he said.

Banks will also dial back loan campaigns for some categories such as travel and mobile phone services, Mr Shoke said.

He said Bangkok Bank has zero-rate promotions for credit cards, though loans tied to the campaigns have not created a significant bad-debt portfolio for the bank.

"Basically, the campaigns are applicable for specific products and services by business operators that are our partners," Mr Shoke said. "They are not offered across all segments and products or services."

If there is a slowdown in such campaigns, business operators may be tempted to offer other promotions for consumers: for instance, price discounts or other promotions under the existing marketing budget.

Mr Shoke said zero-rate campaigns don't always lead to more credit risks. On the other hand, the campaigns serve as an instrument to help customers better manage their cash flow, while enjoying lower prices or better privileges.

The club plans to increase awareness and understanding by clarifying details and information at the meeting with central bank officials.

Although Bangkok Bank's non-performing loan (NPL) ratio from the credit card segment has risen to 2.1-2.2% from 1.9% at the end of last year, this is mainly the result of the slower pace of economic growth.

In related news, net lending of 14 commercial banks grew by 3.8% year-on-year in August, marking the lowest loan expansion rate in 21 months, according to Kasikorn Research Center.

"Business loans remained pressured by debt repayment, while a limited expansion was seen in total new loans issued," K-Research said. "Although retail loans could sustain continuous growth, mortgage and auto loans slowed due to last year's high-base effect, coupled with saturated demand in the property and auto markets."

Debenture issuance is still the preferred choice for funding among small and medium-sized enterprises amid the low-rate environment, the research house said.

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