Bank prepayment fee cut for SME customers

Apisak Tantivorawong, president of Krung Thai Bank and also chairman of the TBA, said yesterday that the new agreement was only for SMEs, not large corporate customers.

The TBA's decision on the prepayment fee was a reaction to recent comments by the Bank of Thailand that banks - particularly the larger ones - should consider waiving the fee that they charge customers who wish to pay back loans before their maturity date. This would give customers more flexibility to move from one lender to another in search of cheaper credit.

The central bank reasoned that banks should allow their debtors to move to more competitive lenders, which would in turn lead to a more significant flow of credit in the economic system.

However, it was reported previously that large banks disagreed with the Bank of Thailand's advice.

"We [the TBA] agreed last week to allow SMEs to move [between banks] as banks have different risk appetites … This will help them [SMEs]. We still have a prepayment fee because banks still have operating costs. This reflects the fact that there's a cost, it's not free," Apisak said.

The ceiling was put at 0.5 per cent of the outstanding loans that SMEs have with a bank, which is lower than the current range of 1-3 per cent.

However, Apisak said the TBA's members would not apply the earlyrepayment fee to larger corporate customers.

"The prepayment fee is a condition that we agree with a customer when we sign the lending contract. It's part of the negotiation with the borrower. Once agreed, you need to honour the terms and conditions. Now, it seems that the banks are [being seen as] the bad guys again.

"For some corporate customers, they negotiate lower interest rates in the first two to three years of the lending period. When rates increase later in line with the contract, they just want to refinance with other banks. For some of them, we help reduce lending rates by as much as 4-5 percentage points," the TBA chairman said.

Krirk Vanikkul, assistant governor of the central bank, said yesterday it was yet to be informed of such a conclusion by the TBA. However, if the association had agreed to reduce the prepayment fee for SMEs, it would be good news for the overall financial system, and particularly borrowers.

Krirk said was understandable that banks did not want to cut the fee for larger customers. Banks also have to carry operating costs, such as for credit analysis.

He said the prepayment fee of 1-3 per cent was, however, still quite high for non-SME corporate borrowers.