Defaults by card users rise
The Nation (12 October 2007)
But customers off books after 3. Defaults on credit-card loans have been on an upward trend as debtors become more cautious about their spending. Sorasit Soontornkes, assistant governor of the Bank of Thailand, yesterday said credit-card holders had a lower capacity to service debt. He did not, however, elaborate. Despite this trend, non-performing loans (NPLs) on creditors' balance sheets have not increased significantly, largely because the card-issuers have actively written the bad loans off their books. "When the debtors cannot pay their debts over three monthly instalments, banks and credit-card companies write them off abruptly. As a result, NPLs in the business have not expanded hugely," Sorakit said. At the same time, cardholders have spent cautiously using their cards, as evidenced by a 2.4-per-cent increase in spending in August, compared with the previous month. This is a slower pace than the 6 per cent recorded in July, according to the central bank. Foreign full branches and non-bank companies registered contractions of 2.56 and 0.07 per cent respectively on a month-on-month basis. Domestic spending on credit cards rose slightly, by 0.27 per cent to Bt50.4 billion in August, after recording 8.81-per-cent growth in July. Cash withdrawals via credit cards expanded significantly by 12.36 per cent to Bt17.1 billion, compared with a 3.6-per-cent decrease in July.
Moreover, total outstanding loans using credit cards contracted for the first time in three months with a 0.52-per-cent decrease to Bt168.76 billion in August, compared with 0.38-per-cent growth in July. Non-bank companies and foreign full branches posted contractions of 1.19 and 0.34 per cent respectively, but Thai banks marked a slight rise of 0.27 per cent in August.
Sorasit said both new and re-entry credit-card NPLs in the banking system had been increasing. The figure, however, is not a concern as commercial banks have already set aside provisions in line with the new IAS39 accounting standard. "Each bank has enough capital to deal with rising NPLs, so we are not concerned," he added. However, Thawatchai Thitisakdiskul senior executive vice president of Krungthai Card (KTC), said the default rate on credit-card loans had increased due mainly to the Bank of Thailand's new regulation on the minimum monthly payment rate, which has made a significant impact on the debt-service capability of credit-card holders. The central bank introduced a rule requiring borrowers to make a minimum monthly payment of 10 per cent of their balance in July last year, up from 5 per cent previously. The economic slowdown and an uncertain political situation have also affected domestic consumption. These negative factors have hit the credit-card loan market, both in terms of expansion of the card base and an increase in bad debts. He said KTC kept control of NPLs by careful scrutiny of new-card approvals. The company will also help existing cardholders who have problems with debt servicing by reducing the loan amount for monthly payments. However, KTC has had to cancel some customers' credit cards when they have no potential to service their debt. The company's distressed debt currently stands at more than one per cent of total credit-card loans, which is lower than the industry's rate of about 4 per cent. Recently, Credit Card Club chairman Shoke Na Ranong said most credit-card providers faced higher NPLs. This is mainly caused by factors including the economic gloom and the central bank's July 2006 rule change on payments. However, card issuers have not yet disclosed their official data on bad debts.
The Nation (12 October 2007)
But customers off books after 3. Defaults on credit-card loans have been on an upward trend as debtors become more cautious about their spending. Sorasit Soontornkes, assistant governor of the Bank of Thailand, yesterday said credit-card holders had a lower capacity to service debt. He did not, however, elaborate. Despite this trend, non-performing loans (NPLs) on creditors' balance sheets have not increased significantly, largely because the card-issuers have actively written the bad loans off their books. "When the debtors cannot pay their debts over three monthly instalments, banks and credit-card companies write them off abruptly. As a result, NPLs in the business have not expanded hugely," Sorakit said. At the same time, cardholders have spent cautiously using their cards, as evidenced by a 2.4-per-cent increase in spending in August, compared with the previous month. This is a slower pace than the 6 per cent recorded in July, according to the central bank. Foreign full branches and non-bank companies registered contractions of 2.56 and 0.07 per cent respectively on a month-on-month basis. Domestic spending on credit cards rose slightly, by 0.27 per cent to Bt50.4 billion in August, after recording 8.81-per-cent growth in July. Cash withdrawals via credit cards expanded significantly by 12.36 per cent to Bt17.1 billion, compared with a 3.6-per-cent decrease in July.
Moreover, total outstanding loans using credit cards contracted for the first time in three months with a 0.52-per-cent decrease to Bt168.76 billion in August, compared with 0.38-per-cent growth in July. Non-bank companies and foreign full branches posted contractions of 1.19 and 0.34 per cent respectively, but Thai banks marked a slight rise of 0.27 per cent in August.
Sorasit said both new and re-entry credit-card NPLs in the banking system had been increasing. The figure, however, is not a concern as commercial banks have already set aside provisions in line with the new IAS39 accounting standard. "Each bank has enough capital to deal with rising NPLs, so we are not concerned," he added. However, Thawatchai Thitisakdiskul senior executive vice president of Krungthai Card (KTC), said the default rate on credit-card loans had increased due mainly to the Bank of Thailand's new regulation on the minimum monthly payment rate, which has made a significant impact on the debt-service capability of credit-card holders. The central bank introduced a rule requiring borrowers to make a minimum monthly payment of 10 per cent of their balance in July last year, up from 5 per cent previously. The economic slowdown and an uncertain political situation have also affected domestic consumption. These negative factors have hit the credit-card loan market, both in terms of expansion of the card base and an increase in bad debts. He said KTC kept control of NPLs by careful scrutiny of new-card approvals. The company will also help existing cardholders who have problems with debt servicing by reducing the loan amount for monthly payments. However, KTC has had to cancel some customers' credit cards when they have no potential to service their debt. The company's distressed debt currently stands at more than one per cent of total credit-card loans, which is lower than the industry's rate of about 4 per cent. Recently, Credit Card Club chairman Shoke Na Ranong said most credit-card providers faced higher NPLs. This is mainly caused by factors including the economic gloom and the central bank's July 2006 rule change on payments. However, card issuers have not yet disclosed their official data on bad debts.
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