Banks set to cash in after negative income tax
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Farmer discounts in place ; 2 populist measures expected to ease debt burdens, NPLs
The government’s negative income tax for low-income earners and product discounts for farmers are expected to boost financial institutions’ activity in those two areas as more people in those categories access credit, while the number of non-performing loans (NPLs) is tipped to fall.
Under the negative-income-tax scheme, low-income earners will receive a subsidy from the government instead of paying taxes, while farmers will receive a discount on purchases of fertilisers and insecticides. The measures will take effect in fiscal 2015, starting on October 1 this calendar year.
The negative-income-tax scheme will cost the government Bt56 billion, with 18.5 million people – or 26.4 per cent of the population – benefiting from it, according to a study by the Fiscal Policy Office (FPO).
Operators involved in instalment lending, microfinance and unsecured loans are expected to benefit from the scheme as their major client bases are farmers and low-income earners.
Piyasak Ukritnukun, managing director of microfinance and auto-refinance provider CFG Services’ company Ngern Tid Lor, expects the tax scheme will reduce household debt and NPLs.
He said it could help reduce the financial burdens facing farmers and low-income earners because they had driven the current high level of household debt in the country. When farmers and low-income earners had more cash flow, financial institutions would give them credit.
Piyasak said farmers represented less than 10 per cent of its total loan portfolio of Bt11.4 billion.
Boonyong Tansakul, chief executive officer of Singer Thailand, said some 175,000 of its borrowers were farmers – meaning the cost-cutting measure would help improve the liquidity of farmers and as such result in an improved loan-repayment situation.
He said the results of the measures were expected to show in the first quarter of next year after the harvest season in the fourth quarter of 2014.
According to Asia Plus Securities, G Capital, Thitikorn, Group Lease, Singer Thailand, Srisawad Power 1979 and Aeon Thana Sinsap (Thailand) are among the listed companies that will benefit the most from the farmer-discount policy.
Citing its research, Asia Plus Securities said most of the customer base at G Capital, Thitikorn, Group Lease, Srisawad Power and Singer were farmers, who spent 19 per cent of their total production costs on the purchase of fertilisers and insecticides.
It said the discounts would help boost farmers’ purchasing power.
The brokerage firm also noted that the negative-tax policy would be a positive for unsecured-loan provider Aeon because low-income earners were a major customer base for the lender.
It said Aeon was also expected to cash in on the higher purchasing power of civil servants after they received an average salary hike of 8 per cent.
Up to 30 per cent of its customers are civil servants.
Around 5 per cent of Singer’s customers are also civil servants, so that company is another listed company that would enjoy high loan demand.
FPO director-general Krisda Chinavicharana said the office was ready to submit nine projects to Prime Minister General Prayuth Chan-ocha that would focus on boosting employment in rural areas.
Krisda said the projects, which were expected to cost more than Bt15 billion, would likely be proposed to the Cabinet soon.
He said the projects would work in tandem with the negative income tax and farmer discounts to create jobs in rural areas.
The FPO hopes all these measures will drive the economy next quarter and help gross domestic product grow by 2 per cent this year, he said.
