Loan criteria tightened amid a surge in household debt; cards have 'less risk'
Surging household debt has prompted Krungsri Consumer to tone down personal lending, in which it is the market leader, and increase its focus on credit cards with a new strategy.
Thakorn Piyapan, managing director of the consumer-finance arm of Bank of Ayudhya, said two income groups, people earning Bt10,000-Bt30,000 a month and those in the Bt50,000-Bt100,000 bracket, were falling deeper into debt. The latter group had taken out loans to purchase vehicles under the previous elected government’s first-car tax-incentive scheme.
Krungsri Consumer had already tightened its lending criteria by lowering credit limits to customers with a rising debt-to-income ratio or maintaining credit limits but limiting the repayment term. New personal-loan accounts have reached only 70,000, short of the target of 90,000.
The debt ratio of a personal-loan borrower should be 40-50 per cent, but now it is averaging 50-60 per cent because the cost of living has risen while incomes remain stagnant.
The company has tightened its lending conditions for personal loans again this month, as it still sees debt ratios climbing higher. It has decided to moderate its new personal-loan target for the second half to Bt31 billion from Bt35 billion.
“If we were to maintain the target, our sales reps would have to chase loans aggressively. That’s too risky for us amid the high-household-debt situation,” Thakorn said.
Krungsri Consumer has outstanding loans of Bt65 billion, but with the more conservative lending policy, its outstanding loans by year-end should be no more than Bt1 higher than the current figure.
Even though credit-card loans are unsecured, their risk is lower than personal loans.
The company’s credit-card portfolio is expected to expand to Bt62 billion by year-end from Bt50 billion at the end of June.
Krungsri Consumer is drafting its three-year plan to comply with the credit-card strategy of Bank of Tokyo-Mitsubishi UFJ, the major shareholder of Bank of Ayudhya.
Starting next year, Krungsri Consumer will grow from credit cards more than from personal loans.
“A clear picture of synergy between Krungsri Consumer and BTMU will be seen next year, but we have joined with Mitsubishi UFJ NICOS, a subsidiary of Mitsubishi UFJ Financial Group, and a top credit-card provider in Japan, to facilitate special programmes jointly to serve the credit-card spending in Japan of Krungsri cardholders,” he said.
The company does not believe the personal-loan business will have a positive outlook for 2015 and grow by double digits as in the past three years because high living costs are still putting pressure on the debt ratio.
The signs of purchasing power regaining life since June are providing a boost to credit-card spending, while the company’s partners, especially modern trade such as shopping malls, have started resuming marketing campaigns to attract traffic.
“Several partners have adjusted their measures to enhance spending after they witnessed lower sales in the first half. All marketing budgets for personal loans will be used for credit cards instead. This year, the marketing budget was set at Bt3 billion, up by 12 per cent from last year,” Thakorn said.
Krungsri Consumer projects its credit-card spending to rise 12 per cent to Bt280 billion.
The number of new credit cards issued might not meet the target, so the firm will focus on card spending, especially for dining at Japanese restaurants and shopping at malls.
“We will also emphasise the zero [interest] rate with long instalment programme for First Choice cards and zero rate with short-term instalment programme for Krungsri credit cards in the second half,” he said.