New rules on credit cards, personal loans

The Bank of Thailand has tightened rules governing credit cards and personal loans to curb overspending and household debt.

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BoT slaps limits on personal borrowing

The Bank of Thailand has tightened rules governing credit cards and personal loans to curb overspending and household debt, including a cut in the ceiling interest rate for to 18%.

The new regulations will take effect from Sept 1.

"The tightened regulations on unsecured loans aim to address the issue of financially vulnerable Thai households, reflected from high percentage of household debt, and indebtedness and default of young Thais," said Ruchukorn Siriyodhin, the deputy governor overseeing financial institution stability at the central bank.

She said the regulations strike a balance between accessibility to services and mindfulness of debt-servicing ability and are aimed at those seen as financially vulnerable.

According to a new set of regulations governing credit cards, the maximum interest rate will be lowered to 18% from 20% at present, in line with card operators' lower financial costs. The new rate will apply to both new and existing cardholders.

The credit line of a new cardholder will be capped at 1.5 times monthly income per card for those earning from 15,000 to less than 30,000 baht a month; at three times for those earning from 30,000 to less than 50,000; and at five times for those earning 50,000 baht or more.

In an emergency, however, cardholders can still request a temporary increase in credit line depending on their income, Mrs Ruchukorn said.

The new rules will affect those who apply for credit cards from Sept 1.

The central bank up to now has set a maximum credit line for cardholders at five times of monthly salary, regardless of income amount.

For personal loans, the current maximum credit line of five times monthly salary will also be changed to a different ceiling credit line depending on salary.

Those who earn less than 30,000 baht will be granted no more than 1.5 times monthly income per creditor, and those earning at least 30,000 baht will be entitled to a maximum five times per creditor.

The new rules on credit lines for personal loans will apply to new borrowers after Sept 1. Those earning below 30,000 baht a month will be limited to three personal loan creditors, while there is no restriction in terms of the number of creditors in the case of those earning 30,000 baht and higher a month.

In an emergency, borrowers can ask creditors for additional credit at a maximum of five times monthly income.

The annual interest cap for unsecured personal loans will remain unchanged at 28% to prevent troubled debtors from resorting to loan sharks, Mrs Ruchukorn said.

According to the Bank of Thailand, non-performing loans (NPLs) for outstanding credit cards and unsecured personal loans stood at 2.9-3% at the end of June. The new measures are unlikely to cut bad loans because they will apply only to new applicants.

"Each cardholder owns four credit cards on average, and the card issuers are already cautious about when they will grant additional cards to these holders," said Somboon Chitphentom, the central bank's assistant governor for the financial institutions policy group.

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