Credit-card top rate raised

Maximum interest rates for new credit card users will increase to 20% per year from 18% starting next month, the Bank of Thailand announced yesterday. Existing cardholders with outstanding balances will be given a seven-month adjustment period, with the new rate taking effect on June 30. New outstanding debt, however, can be charged at the new rate starting next month.

Krirk Vanikkul, an assistant central bank governor for financial institutions policy, said the seven-month adjustment period was to ease the burden cardholders would face, particularly those who took out cards before April 2004.

Cardholders before 2004 were granted until April 2007 before facing an increase in minimum monthly payments to 10% from 5% now. Cardholders after 2004 already face the higher rule.Mr Krirk said that to minimise the impact on older cardholders from higher minimum payments, as well as higher interest rates, the central bank decided to give borrowers additional time to clear existing debts before the new rate takes effect.

''We expect old debt to decrease significantly after six months, particularly once the 10% minimum monthly payment rule takes effect,'' he said.

Mr Krirk noted that some banks may not raise rates for new spending despite the higher rate ceiling. ''If the banks can bear with the higher costs, they might not raise rates. We will leave this to market competition.''

Other banks could face technical challenges in calculating multiple rates for new outstanding credit versus debt outstanding before Dec 1, and thus decide to delay a rate hike until next June.

The adjustment followed a petition from card issuers earlier this year seeking permission to raise rates to reflect higher interest expenses in the market.

Mr Krirk defended the central bank's move even as interest rates have stabilised and are expected to fall in 2007.

''Issuers requested that the maximum rate be raised at a time when the 14-day repurchase rate stood at 4.5%. The rate now has increased to 5%, compared with just 2% in 2002,'' he said.

The 18% maximum ceiling was first imposed in 2003.

''Thailand ranks among the countries with the lowest interest rates for credit cards,'' he said. ''Japan, for instance, has a ceiling of 29%, and most range between 20% and 36% per year.''

The new rate rules were published in the Royal Gazette last Friday.

The central bank also eased rules on card applications, with issuers allowed to evaluate the financial position of companies rather than individuals for corporate cards. Applicants with investments in debt instruments issued by banks, government agencies and state enterprises can also be considered in setting credit lines.

Mr Krirk said the central bank was not considering changing the rate ceiling for unsecured personal loans, now set at 28%.

Overall asset quality for credit card receivables also remains strong, with non-performing loans at just 3% of total loans. Outstanding credit card loans stand at 20% of total transaction volume, a ratio unchanged from 2004 and half that reported in 2002.

Growth of non-bank consumer finance issuers has slowed in recent quarters. But banks had seen growth increase to about 10% compared with 7% last year.

Kattaya Indaravijaya, a first senior vice-president at Kasikornbank, said the new rules would help ease margin pressure on the bank, which currently had funding costs of 5%.

She said Kbank planned to increase minimum monthly payment requirements gradually from 5% now to 6% in January to 10% in April.

''The new rules will affect only certain cardholders. Some could face a double burden of higher monthly payments and higher interest rates,'' Mrs Kattaya said.

Thawatchai Thitisakdiskul, a senior executive vice-president at Krungthai Card, said funding costs at the country's largest card issuer had increased to 6% now from 2% several years ago.

''But only 40% to 50% of card users run credit balances from month to month, so the measures won't affect everyone,'' he added.

By PARISTA YUTHAMANOP & DARANA CHUDASRI

All about home insurance

I shell out just Rs 10 every day to cover the valuables of my home." This was the quick response of Viswanathan Iyer, when asked why he took a home insurance. His residence has had a cover for the last five years. Iyer says: "I own a house in Mulund West, Mumbai, and have insured it - including valuables such as jewellery, television and other electronic items in the house - or Rs 20 lakh (Rs 2 million). My premium payout is Rs 3,240 a year."

Everyone would recall the deluge that wrecked Mumbai on 26 July last year. It is interesting to note that while motor claims were piling up, insurance industry says, claims for home insurance were few and far between.

Smart tip
Get discounts of 15-20 per cent on the premium by buying cover under four to six sections of the home insurance policy and above 20 per cent for coverage in more than six sections.

Most insurers say there has not been any drastic increase in the number of people taking home insurance this year, despite the experiences of the past year, and its penetration is still very small. Insurance Regulatory and Development Authority chairman C S Rao points out that the awareness about taking home insurance is low compared to life insurance and health cover. Most people don't know that the premium to be paid is considerably small for the value insured.

Does your home need insurance?

If your answer is yes for the following questions, then you would probably require an insurance cover for your home.

• Is the structure of your home worth over Rs 500,000? (The value of the building and not the market value of the property.)
• Does your home have valuable plate glass doors and windows?
• Do you own electronic gadgets worth over Rs 200,000?
• Is your house located in an area that is prone to the risks of floods, earthquakes or burglaries?
• Are you living in a rented house, but own high-value domestic and electronic appliances? Do you have expensive furniture?

Though Iyer has not made any claims, he continues to renew his policy every year. The 40-year-old man's line of reasoning is that with hard work he managed to build a home and acquire valuables, the loss or damage of which will be large. "I see it as Rs 10 a day, less than the minimum auto rickshaw fare. I earn over Rs 10 lakh a year and the premium payout is a small fraction of my income," he says.

If you are wondering why, despite its benefits, your agent is not pushing for a home insurance, here's your answer: the premiums are small and so are the commissions. And commission largely drives agents.

S S Gopala Rathnam, president (operations) Cholamandalam MS General Insurance, says the agent feels there is an opportunity loss in selling home insurance. He would rather choose to sell a cover that fetches him more returns. In fact, agents usually insist that customers choose more segments under the home cover so that the ticket size increases and becomes attractive for them. Enhanced cover also ensures discount for the customer.

What can be covered

Home insurance can cover losses to the structure and contents of your home from any natural or man-made calamity. The disasters that can be insured against are fire, earthquakes, storms, cyclones, tempests, tornadoes, hurricanes, floods or inundation, lightning strike, explosion, landslides, impact by vehicles or aircraft, and bursting or overflowing of water tanks and pipes.

Burglary cover. Loss due to burglary or an attempted robbery of valuables such as jewellery and silverware can also be covered.
Alternative accommodation. In case the family is forced to shift to an alternative accommodation because of an insured peril, the cost of the additional rent will be taken care of.
Breakdown of domestic appliances. Home insurance covers the breakdown of ACs, and refrigerators. If there is accidental electrical or mechanical failure of domestic appliances, losses that can be repaired will be settled by repaying repair cost without applying any depreciation by the insurance company. But items that are over 10 years old will not be insured.

Benefits of taking home insurance

Cost of premium is small. The cost of the insurance premium in comparison with the value and cost of the structure and contents, domestic and electronic appliances, is less than one per cent.

Policy covers a range of segments. Home insurance covers almost all kinds of catastrophic risks, from damages arising from terrorist attacks to breakdowns of water tanks. The choice is yours - if you think your home is not going to be damaged by a terrorist attack, you don't need to cover it. In case you are living in a rented house, you can choose to insure only the contents.

Covers cost of temporary shelter. In case of fire or damage to your home, which makes it unlivable, the cost of temporary rental for six months not exceeding Rs 1 lakh will be covered.

Buy it online. It is simple and easy to buy home insurance. You can buy it online as well. Just log on to any of insurance companies' websites and fill the necessary details to buy a policy.

How to claim

• Call the insurance company call centre or your agent immediately. Keep these phone numbers in the emergency list.
• Write a letter stating all the damages in detail and take a copy of it before sending it to the insurance company.
• Take photographs before cleaning up and salvaging what is left.
• Keep damaged material for proof of loss.
• In case of burglary, report it to the police.
• Ensure that you keep a copy of all information and receipts.

Bridget S Leena, Outlook Money

Britain’s Biggest Mortgage Lender Offers 125% Mortgages

Britain’s biggest mortgage lender, HBOS, has launched a new home mortgage loan package for recent graduates and young professionals which will allow them to borrow up to 125% of the value of their property.

Comprised of a 95% home mortgage loan and 30% unsecured personal loan, the Mortgage Plus deal is being offered to graduates and young professionals through HBOS’s specialist lending arm, Birmingham Midshires. The mortgage lender hopes that this new deal will help elevate them to the top spot of the UK’s niche mortgage market of lending to young professionals and recent graduates – a market which is estimated to be worth £10 billion.

While borrower’s will still be required to put down a deposit of 5% of the property’s value, hence the 95% home mortgage loan, the 30% unsecured loan, which cannot be for more than £30,000, can be used as surplus cash to pay for all of the usual outgoings normally associated with buying a property in the UK; such as stamp duty, furniture and home decorations. Practically, this should make it much easier for young professionals and graduates in the UK to come with the 5% down payment needed to qualify for the package.

Although HBOS’s latest package may seem radical, this is not the first time we have been down this road. Those who recall the dark days of negative equity in the UK housing market in the late 1980s and early 1990s will also be able to recall that a large amount of this negative equity resulted from homeowners who had be granted 125% home mortgage loans by their mortgage lenders.

With the Bank of England’s recent announced rise in base rate, record numbers of UK home repossessions, and a large increase in the number of homeowners in arrears of their mortgage repayments in the last six months, many industry watchers are now extremely concerned that the 125% mortgage offer from HBOS, as well as similar deals being offered by Northern Rock, Coventry Building Society and Bradford and Bingley, is going to place an unnecessary financial burden on young professionals and graduates, looking to future earning to repay current debts, who have yet to fully adjust to a life of financial discipline outside on university and who may otherwise have wished to be a little reckless with their pay-check.

While the temptation to get on the UK housing market sooner rather than later may be extremely tempting, any young professional considering a 125% home mortgage loan only needs to look back a few years to see the dangers that can be tied up with this kind of home property loan borrowing.