Stringent regulation sets credit card tone

With strong risk management as one of the major keys to its success, Thailand’s domestic level of credit card debt currently constitutes just 2.6 percent of the nation’s overall household debt. In practical terms this equates to 260 billion baht out of the 10 trillion baht which forms the total of household debt in Thailand. That last figure is equal to about 80 percent of Thailand’s GDP.

Perhaps mindful of the terrible financial and potential social ills which can follow a policy of allowing almost anyone to obtain a credit card, the Bank of Thailand (BoT) has imposed quite stringent regulations on the issuing of credit cards to the average consumer.

Interest rates are capped at a maximum of 20 percent per annum, a level which, unsurprisingly, is adopted by most of the major lenders. Allied to this is a regulation that insists a minimum payment of 10 percent of the outstanding balance be made at the end of each month. This is meant to ensure the debt service capability of cardholders.

These two factors make it important for lenders to screen credit card applicants in an effort to reduce potential defaulters.  Even so, there are approximately 17 million credit card holders currently and this number is expected to increase to 18 million by the end of 2013.

This increase in credit card holder numbers is expected to partly drive up the level of household debt to around 82 percent of GDP by 2016. This compared to just 63 percent of GDP in 2010.

In the same period, rising interest rates are projected to reach four percent, up from the present 2.5 percent.

It is expected the debt service ratio of retail borrowers will rise marginally from its current 33.8 percent to 39 percent, which is still viewed as an acceptable level. Much of this will not be via credit card loans since the tight regulations mean that sector has a limited impact compared to more common retail loans and other consumer finance products.

In the first half of this year, credit card spending in Thailand totalled 1.1 trillion baht. With business conducted by credit card expanding, even with the stringent regulations in place, the major banks are looking at ways of providing merchants with more streamlined methods of taking payments from customers.

Kasikorn Bank, for example, wants to expand its credit cardholder numbers by 650,000 by the end of 2013 to reach three million. To help drive this increase Kasikorn intends to roll out its point-of-sale technology for credit card readers to 50,000 affiliated merchants by the end of the year.