Thailand tightens credit-card rules to battle high household debt

[webfact]

Thailand tightens credit-card rules to battle high household debt

By Orathai Sriring and Kitiphong Thaichareon

 

Image: REUTERS

 

* Curbs credit line limits for credit cards, personal loans

* Cuts maximum credit card interest rate to 18 pct from 20 pct

* High household debt 'may affect the economy' - c.bank deputy gov 

 

BANGKOK, July 26 (Reuters) - Thailand's central bank on Wednesday tightened controls on credit cards and unsecured personal loans, a move that should contain high household debt levels and could cut domestic consumption.

 

The measures, effective Sept. 1, come at a time of concern about overspending by citizens and rising bad loans.

 

The rule-changes mean credit-card holders can no longer automatically get credit limits of five times their monthly incomes. From Sept. 1, only individuals earning at least 50,000 baht ($1,492) a month can get a maximum spending limit of five times their monthly salary for credit cards.

 

At the end of March, Thailand's household debts were 78.6 percent of gross domestic product, among the highest in Asia, although that eased slightly from 79.8 percent at end-2016.

 

"Thailand's household debt has been high and may affect households and the economy in the long term," Bank of Thailand Deputy Governor Ruchukorn Siriyodhin told a news conference.

 

High debt levels have already had an economic impact. They are one reason the central bank has not cut its benchmark interest rate for more than two years to try to lift Thailand's sluggish growth pace, as such a move could raise household debt levels.

 

Credit card loans that became bad credits stood at 3.8 percent of all such loans at end-March, while those of personal loans were 2.9 percent.

 

Asset Quality Pressure

 

On Wednesday, Fitch Ratings said Thai banks continued to face asset quality pressure stemming from vulnerabilities in small-and medium-sized enterprise and unsecured retail loan sectors.

 

Currently, there are 6.7 million people holding 19.8 million credit cards, Ruchukorn said.

 

The new rules cut the maximum credit card interest rate to 18 percent from 20 percent, she said.

 

New credit card applicants with a monthly salary below 30,000 baht can have a credit line of up to 1.5 times their income, and those with less than 50,000 baht income will get up to three times.

 

The credit line for new unsecured personal loan applicants with monthly income below 30,000 baht will be limited to 1.5 times their income, and they will be limited to three accounts.

 

Shares in market leader Krungthai Card, Thailand's biggest credit-card issuer and a unit of Krung Thai Bank fell 5 percent on the credit-card changes. The banking index was off 0.11 percent.

 

Thai people started accumulating debts from a younger age, over a longer period, and of a larger amount, BOT Governor Veerathai Santiprabhob said last month, adding the high debt levels were a challenge for households and policymakers. ($1 = 33.51 baht)

 

Additional reporting by Chayut Setboonsarng; Editing by Richard Borsuk

 

-- © Copyright Reuters 2017-07-26

[lujanit]

Illegal money lenders will love this.

[YetAnother]

18 minutes ago, webfact said:

and they will be limited to three accounts.

how can they possibly check that across banks ?

[KittenKong]

26 minutes ago, webfact said:

Cuts maximum credit card interest rate to 18 pct from 20 pct

 

So by cutting interest rates they hope to reduce lending?

 

Another example of extraordinary Thai economic theory.

[Ricardo]

" * Cuts maximum credit card interest rate to 18 pct from 20 pct "

 

I wish the Bank of England would follow this example, they too have high personal-debt, yet I believe 30% interest is still common for a credit-card, and I see interest-rates in the thousands advertised, on daytime-television.

[trogers]

What would happen to those taxi drivers with their govt approved credit cards?

[Ralf61]

34 minutes ago, KittenKong said:

Another example of extraordinary Thai economic theory.

The Thai theory of economy is as simple as the Thai theory of life : Don't waste your present day with the problems of tomorrow.

[snoop1130]

Thai banks under pressure, says ratings agency

By The Nation

 

Thai banks continue to face asset quality pressure stemming from vulnerabilities in the SME and unsecured retail loan sectors, and are exposed to risks in the highly indebted household sector, says Fitch Ratings.
 

However, a slight pick-up in the economy and tighter underwriting standards should help reduce non-performing loan (NPL) growth by the end of the year.

 

Asset quality pressures were apparent in the 2017 first half results, with the average impaired loan ratio of SET-listed banks rising from 3.5 per cent in December 2016 to 3.7 per cent in June 2017. Loan loss coverage also fell.

 

“These results were in line with our expectations and have reinforced our negative outlook on the sector and operating environment,” Fitch said in a statement.

 

The NPL ratio was particularly high – and rising – in the SME sector, reaching 4.5 per cent in the first quarter of this year.

 

“This reflects the weaker resilience of small businesses to the challenging economic environment compared with larger firms,” Fitch said.

 

There were also signs of strain in the household sector, with the NPL ratio on housing loans rising from 2.9 per cent in the fourth quarter last year to 3.2 per cent in the first quarter of this year.

 

“Thailand’s household debt is high, at close to 80 per cent of GDP, and is a key source of risk for banks,” the ratings agency said.

 

Nevertheless, NPLs should peak by the end of the year. Fitch expects economic growth of 3.4 per cent in 2017, which is muted by regional standards, but would be a slight improvement on 2016. Moreover, the first half results for 2017 showed a marked slowdown in loan growth, to just 1.8 per cent year-to-date in June.

 

“The Bank of Thailand (BoT) is considering plans to tighten lending standards on unsecured loans, but the slowdown in lending growth suggests banks have already become more cautious in their lending decisions,” Fitch said. “This should reduce asset quality issues in the coming quarters.”

 

It said that high provisioning costs continued, for now, to put downward pressure on bank profitability. However, net interest margins edged up in the first half of this year and costs have been cut, softening the decline in banks’ return on assets, which fell slightly to 1.30 per cent from 1.34 per cent in the first half of 2016.

 

“The Thai banking system generally maintains sound loss absorption buffers to weather headwinds,” Fitch said. “Profitability is likely to remain healthy enough to support reasonable internal capital generation.

 

“Key capital ratios have improved over recent years, due to retained profit accumulation, and are well above regulatory minimums.”

 

Fitch said that all banks in its coverage were well-placed to meet the minimum Tier 1 capital requirement (including the conservation buffer) of 8.5 per cent that will be applied from 2019, despite some potential negative effects on capital from the implementation of IFRS 9 accounting standards, which is expected in 2019.

 

Source: http://www.nationmultimedia.com/detail/business/30321875

 

-- © Copyright The Nation 2017-7-26

[RichardColeman]

Not surprised by this bad debt. I don't have a fortune coming form UK to Thailand every month. I don't own a car or a motorbike. I get by and have enough just really for myself, wife, baby and two cats !!! Point is my neighbors either don't work or work very dead end jobs less than 15,000 a month but all have houses, cards, motorbikes, out drinking in the front of the houses each night.  Only possible way they can do this on maybe half or two thirds my income is Mr Plastic Never Never I think. Thailand is in for a very rude financial awakening and meltdown.

[trogers]

"Nevertheless, NPLs should peak by the end of the year"

 

New launches of residential projects in Q3 to exceed Bt100 billion

 

Who is lying?

Edited July 26, 2017 by trogers

[Baerboxer]

21 minutes ago, RichardColeman said:

Not surprised by this bad debt. I don't have a fortune coming form UK to Thailand every month. I don't own a car or a motorbike. I get by and have enough just really for myself, wife, baby and two cats !!! Point is my neighbors either don't work or work very dead end jobs less than 15,000 a month but all have houses, cards, motorbikes, out drinking in the front of the houses each night.  Only possible way they can do this on maybe half or two thirds my income is Mr Plastic Never Never I think. Thailand is in for a very rude financial awakening and meltdown.

 

They have a different attitude to borrowing. I have known Europeans like this to. House, high mortgage; expensive car bought with bank loan; credit cards used and minimum payments paid each month. 

All goes fine until an unexpected large bill, job loss, health issues etc etc.

 

 

[clockman]

But 20,000 loan sharks? And no regulation?

[Krataiboy]

Yeah, but. . .

 

Not to worry. Soon the joys of the cashless society - now being rolled out in lucky Chiang Mai - will become a reality across the kingdom and bank managers will decide what you can and can't spend and on what.

 

Can't wait - can you?

 

[janclaes47]

2 hours ago, snoop1130 said:

The NPL ratio was particularly high – and rising – in the SME sector, reaching 4.5 per cent in the first quarter of this year.

 

When i drive around and see the half finished projects of shophouses and villas, that are there for years already, and the finished projects that have never been occupied however finished several years ago, and at the same time they are starting new projects next door then I wonder how many of those will be in NPL segment.

 

I drive for example almost every day over the highway 7 into Pattaya, and from the Nongprue toll booths to sukhumvit which is about 3 km, it is only unfinished and never occupied projects one next to each other.

[khunpa]

2 hours ago, RichardColeman said:

Not surprised by this bad debt. I don't have a fortune coming form UK to Thailand every month. I don't own a car or a motorbike. I get by and have enough just really for myself, wife, baby and two cats !!! Point is my neighbors either don't work or work very dead end jobs less than 15,000 a month but all have houses, cards, motorbikes, out drinking in the front of the houses each night.  Only possible way they can do this on maybe half or two thirds my income is Mr Plastic Never Never I think. Thailand is in for a very rude financial awakening and meltdown.

Agree, I also see this a lot where we live.

 

I think a big problem is also due to short term thinking and no real financial understanding amongst many Thais. They see the money (credit) as easy money to spend and forget all about it having to be paid back.

 

 

[Shroud]

7 hours ago, webfact said:

The new rules cut the maximum credit card interest rate to 18 percent from 20 percent, she said.

The rate is crazy, but at the same time how are you going to curb credit card debt by lowering the interest rate? It will in my opinion only attract more debtors, and who's stupid enough to take a credit card debt of such a high interest!

[Jonmarleesco]

7 hours ago, KittenKong said:

 

So by cutting interest rates they hope to reduce lending?

 

Another example of extraordinary Thai economic theory.

No, they're hoping to reduce accruing debt. Though it's unlikely to have the desired effect. 

Edited July 26, 2017 by Jonmarleesco

[connda]

But they have overextended credit to a large segment of the subprime Thai consumer market.  It's plain as day to see.  I know what my Thai friends make and then I see what types of assets they own: new cars/trucks/motorcycles, electronics, bling, stuff and more stuff -- and they are in debt to the point where they need to use one credit card to pay off another.  The next cycle of financial chaos will crash the system permanently imho.  The banks are out of control with their lending and no doubt will expect the government and their depositor to backstop them when the debt crisis goes south.  This is a sad story waiting for a place to happen.  

[wvavin]

This typical Thai "face factor" have practically smashed the whole economic development of this country for decades but they feel ok with it.

[how241]

I think many other countries are worst off.

[worgeordie]

The Banks or other money lenders only want debtors to pay off the interest or make minimum payments,

so they are in debt forever, wonder when they are going to think about the people who are canny with

their money,don't spend more than they earn,and try and save a few Baht every month for the future,

at the moment they are losing money everyday as interest rates given by the Banks don't cover inflation.

regards worgeordie

[sebastion]

Not a chance. Thailand thrives on a cash economy.
Forget the numbers in these articles. The black money economy dwarfs the actually transparent economy that you're so concerned about.

Cash isn't going anywhere in Thailand.

Sent from my SM-G955F using Tapatalk

[Khon Kaen Dave]

9 hours ago, RichardColeman said:

Not surprised by this bad debt. I don't have a fortune coming form UK to Thailand every month. I don't own a car or a motorbike. I get by and have enough just really for myself, wife, baby and two cats !!! Point is my neighbors either don't work or work very dead end jobs less than 15,000 a month but all have houses, cards, motorbikes, out drinking in the front of the houses each night.  Only possible way they can do this on maybe half or two thirds my income is Mr Plastic Never Never I think. Thailand is in for a very rude financial awakening and meltdown.

Spend,spend ,spend. Viv Nicholson

[greenchair]

9 hours ago, RichardColeman said:

Not surprised by this bad debt. I don't have a fortune coming form UK to Thailand every month. I don't own a car or a motorbike. I get by and have enough just really for myself, wife, baby and two cats !!! Point is my neighbors either don't work or work very dead end jobs less than 15,000 a month but all have houses, cards, motorbikes, out drinking in the front of the houses each night.  Only possible way they can do this on maybe half or two thirds my income is Mr Plastic Never Never I think. Thailand is in for a very rude financial awakening and meltdown.

Yes, I said thailand would be in for a rude awakening a couple of years ago. rather than have "the rice scheme " this government  set up thousands of small loans, the banks have been pushing credit cards relentlessly, all to create an atmosphere of spending and great economy. Now that money has been spent and the long trudge to pay it off has come. So currently the poor have low income and debt. 

Luckily, the country, might possibly be handed to a new government and they can be blamed for the meltdown that is coming. 

[wgdanson]

16 hours ago, webfact said:

New credit card applicants with a monthly salary below 30,000 baht can have a credit line of up to 1.5 times their income, and those with less than 50,000 baht income will get up to three times.

Isn't 30,000 less than 50,000?

[KittenKong]

16 hours ago, Ricardo said:

I wish the Bank of England would follow this example, they too have high personal-debt, yet I believe 30% interest is still common for a credit-card, and I see interest-rates in the thousands advertised, on daytime-television.

 

Interest rates on unsecured loans have to stay high to compensate for the vast numbers of people who default on their debts. Those who pay their bills also pay for those who dont.

[inThailand]

When you can't add two numbers up without a calculator, should you be eligible to get a credit card card?

[Zack61]

11 hours ago, clockman said:

But 20,000 loan sharks? And no regulation?

They'll pick up the slack and push personal debt into a sharper decline with even more dire consequences for the borrower. 

The trouble is that people don't realise that you can only spend it once and live well beyond their means. Common to most, if not all countries but well and truly engrained here. 

[mikebell]

'credit card interest rate to 18 pct from 20 pct' I thought loan-sharking was illegal in Thailand?

[inThailand]

Isn't the household debt actually much higher? They need to add in the loan sharks 10-20% of the market.

Edited July 27, 2017 by inThailand
fat fingers