Stricter unsecured loan rules leave banks unfazed

The Bank of Thailand’s plan to impose tighter regulations on unsecured loans will have a limited impact on commercial banks’ business as the loans account for a small slice of total lending, says the head of the Thai Bankers’ Association (TBA).

The regulations will come as a boon to lenders as it will improve consumer spending discipline, helping them avert further debt accumulation, and alleviate lenders’ burden in setting aside loan-loss buffers, said Predee Daochai, chairman of the TBA.

Outstanding loans for commercial banks tallied 10.7 trillion baht as of May, according to Kasikorn Research Center data. Unsecured loans lent by both bank and non-bank companies amounted to 670 billion baht at the end of April, of which 338 billion was credit card loans and the rest were personal loans.

Banks’ outstanding credit card loans totalled 206 billion baht and those for the non-bank sector came to 132 billion. Banks’ personal loans totalled 153 billion baht, while non-bank companies’ stood at 179 billion.

The central bank is set to announce amended regulations on unsecured loans. Some media outlets reported the Bank of Thailand would only set a minimum credit line for new credit cardholders of 1.5 times salary, in addition to the existing maximum of five times, with the minimum salary requirement of 15,000 baht remaining unchanged.

Other reports suggested the central bank will impose harsh regulations by doubling the minimum salary of credit cardholders to 30,000 baht a month and cutting the credit line to 1.5 times.

The planned restrictions have dealt the harshest blow to Krungthai Card Plc’s (KTC) share price, an unsecured loan provider arm of Krungthai Bank. KTC’s share price has slid 17% since the media started reporting on the issue a few weeks ago to 107 baht at the close of trade on the SET yesterday.

Mr Predee, who is also president of Kasikornbank (KBank), said KBank’s unsecured outstanding loans add up to 20 billion baht, compared with total loans of 1.63 trillion. The bank does not plan to adjust its strategy to comply with the new regulations as its current credit line for unsecured loans is already based on borrowers’ risk profiles, he said.

Banks rarely offer a maximum credit line to cardholders, said Mr Predee.

“Some individuals who are not qualified based on the new regulations may turn to loan sharks if they are in dire need,” he said.