Thailand tightens credit-card rules to battle high household debt

Thailand tightens credit-card rules to battle high household debt
PHOTO: Reuters

BANGKOK - 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 (S$2,035) 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 per cent of gross domestic product, among the highest in Asia, although that eased slightly from 79.8 per cent 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 per cent of all such loans at end-March, while those of personal loans were 2.9 per cent.

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 per cent from 20 per cent, 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 per cent on the credit-card changes. The banking index was off 0.11 per cent.

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 that the high debt levels were a challenge for households and policymakers.

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