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