The Bank of Thailand found in a study that borrowers had seen only a little extra added to their monthly payments or had to pay just a few extra instalments.

Amporn Sangmanee, an executive with the central bank's Monetary Policy Group's Monetary Policy Analysis and Strategy Division, said banks had prepared early on for the rising trend by setting their lending rates at a high-enough level to absorb the impact.

The central bank gave the example of a Bt1-million, 20-year loan charging 3.75-per-cent interest for the first two years and the minimum lending rate (MLR) for the remaining term. The minimum monthly payment is Bt7,000.

After the first two years, the borrower is charged at the MLR of 5.75 per cent. He continues to pay Bt7,000 per month under the 240-month maturity.

Actually, the borrower could pay off the loan in only 224 months but is required to expand the term, in case rates go up in the future.

If the MLR rises to 7.25 per cent, the borrower will only pay an extra Bt500, or 7 per cent of the original monthly instalment, to maintain the 20-year maturity.

If the rate surges to 8 per cent and stays there for the life of the loan, the debtor's additional payment is still only Bt900, or 13 per cent higher.

So, the borrower must pay Bt500 per month more for a rate change of 1.5 percentage points and Bt900 for a change of 2.25 percentage points.

However, the bank may ask the borrower to pay more instalments to keep each monthly payment at Bt7,000. The loan term will extend to 275 months if the rate rises to 7.5 per cent and about 315 months if it hits 8 per cent.

Most banks have not yet revised loan terms, because they are cushioned against rate hikes.

Amporn said the contractual changes depended on a bank's view of economic and interest-rate prospects. It may raise the monthly payment if it expects rates to edge up further.

"Rates will not increase forever, but it's up to the bank to decide," he said.

Many banks are now quoting an MLR of 7.5 per cent, while the highest is 8.25 per cent.

Amporn said improvements in household income had also helped borrowers' capacity to stay current on their home loans, so non-performing loans (NPLs) had not risen.

Deputy governor Tarisa Watanagase said NPLs had not become a problem, because rates had gradually moved up in anticipation of rate hikes, and both lenders and borrowers had acted prudently.

She added that the central bank was closely monitoring the impact of the rate changes.

Anoma Srisukkasem

The Nation