KBank looks to move in on loan sharks

“We believe banks want to offer unsecured loans to lower-income people because personal loans yield a higher margin than the credit-card business. But the interest rate of 28 per cent is not encouraging lenders to focus on lower income people much. Lower income people, therefore, continue to rely on loan sharks rather than banks,” said Chartchai Payuhanaveechai, executive vice president of Kasikornbank. 

The Bank of Thailand is reportedly considering raising the interest rate on personal loans above 28 per cent for people with a monthly income below Bt10,000 and maintaining the interest rate at 28 per cent for people with a monthly income of more than Bt10,000.

The interest rate on personal loans should match up with the risk level of creditors because the product is unsecured, which is a risk for banks. Banks cannot aggressively promote personal loans due to fears that non-performing loans (NPLs) would swell, a banking executive said.

The growth rate of personal loans per year is only 2-3 per cent. The overall market is valued at Bt160 billion to Bt170 billion.

Chartchai said Kasikornbank agrees that the central bank should increase the ceiling on interest rates as the higher-risk group is regarded as too doubtful compared with the low risk group. In the overall personal loan market, the NPL ratio of low-income earners is 5-7 per cent, higher than the 3-5 per cent of medium-income earners, he said.

KBank’s NPL rate is 1 per cent for low-income customers.

Its customer base consists mainly of those earning a monthly income of more than Bt15,000. This segment accounts for 80 per cent of its personal loan portfolio, while the rest are earning less than Bt15,000.

The bank’s outstanding loans this year are expected to increase to Bt11 billion from Bt5 billion last year.

Araya Phuphanich, first executive vice president of Siam Commercial Bank, said the outlook for personal loans this year might not be so bright because customers have more choices on how to access money, such as cash-for-car and home-equity products.

New personal loans in the first half would be focused more on making post-flood repairs rather than spending for shopping or other purposes.

The bank, however, has to be more cautious about the risk from personal loans because NPLs from unsecured loans will become a problem during a downturn. 

The bank predicts its outstanding personal loans this year would soar to Bt30 billion from Bt21 billion.