The joint venture between Government Savings Bank (GSB) and SET-listed Srisawad Corporation Plc (SAWAD) has earmarked 20 billion baht for the motorcycle title loan business, offering an interest rate of almost half market rates.
Fast Money Co, of which 49% was acquired by GSB for 1.5 billion baht in November last year from Srisawad, rolled out a low-interest motorcycle title loan product yesterday that offers an interest rate of only 14.99%, or a flat rate of 0.69% a month.
This rate is much lower than the market rate from financial institutions of 24-28% a year.
"The 14.99% annual rate is much lower than the 18% we announced earlier. We believe this is good for low-income earners who need quick money by using their motorcycle titles as loan collateral," said GSB chief executive and president Vitai Ratanakorn.
"The main goal of GSB's foray into the vehicle title loan business is to force market interest rates for this loan segment to reduce to 16-18% in the longer term."
When interest rates for vehicle title loans decrease, this could reduce interest rates applied to other loan categories, he said.
Mr Vitai said in the next two months the joint venture firm is also scheduled to start providing car title loan service, again with an interest rate lower than the market.
He said the low-interest vehicle title loan business will be operated through 5,000 branches of Srisawad nationwide.
GSB branches will have Fast Money Co booths installed to provide the service, starting with 35 branches in the first phase, said Mr Vitai.
The number of GSB branches providing the service will eventually increase to 500 by May and 800 at year-end, he said.
GSB has 1,000 total branches.
According to Mr Vitai, the bank aims to alleviate the financial hardship of low-income earners, helping them narrow income disparity and poverty.
This new business allows low-income earners greater access to low-interest loans.
There are about 25 million people in Thailand who earn an income of less than 15,000 baht a month.
Of the total, up to 40% can access loans in the country's financial system, he said.
There are roughly 21 million motorcycles in the country, and owners of 3.5 million are clients who have motorcycle title loans through financial institutions, said Mr Vitai. The balance use financing that is not from financial institutions.
Even with Fast Money's new low-interest offering, he believes legacy financial institutions selling motorcycle title loans will remain profitable because their net interest margin (NIM) averages up to 20%.
This rate is much higher than the NIM of state-owned banks and commercial banks, at 2.2-2.5% and 3.5%, respectively.
NIM is a measurement comparing the net interest income a financial firm generates from loan products with the outgoing interest it pays holders of savings accounts and certificates of deposit.
Thida Kaewbootta, investor relations officer of Srisawad Corporation, said Fast Money expects to extend 800,000 to 1 million clients an average of 20,000-30,000 baht per client, with a repayment period of 18 -24 months.
The firm estimates needing less than 15 minutes per person to approve loans.
There is no requirement for a vehicle title transfer, but for motorcycles customers must be more than 15 years old, she said.