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Banks told to cut interest rates and fee charges for small businesses, consumers

Banks told to cut interest rates and fee charges for small businesses, consumers

TUESDAY, January 07, 2020
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The Bank of Thailand (BOT) has ordered financial institutions to change the ways they calculate interest rates and fee charges to lessen the financial burden on small businesses and at the same time, reflecting real cost, said governor Veerathai Santiprabhob on Tuesday (January 7).

The central bank has demanded banks to make change to prepayment fine whereas banks usually impose interest charge on the full loan amount extended to small and medium-sized enterprises(SMEs) and individual clients. Under new calculation method, interest charge must be based on the balance amount. Banks are also required to set a grace period for prepayment’s interest rate charge. The new way of interest rate calculation is aimed at encouraging competition in debt refinancing market, said Veerathai.
Banks are also required to change the way they calculate interest charge for default on mortgages, SME loans, and personal loans. Currently banks impose interest rates on a balance amount. New interest charge must be based on the installment amount as it will be lower. Banks should reduce interest rate or cancel interest rate on existing clients who are currently on loan default list.
Banks were also asked to offer a grace period on interest payment should a debtor fail to pay his debt on time due to genuine financial difficulties. This new way of debt restructuring will be fairer and reduce the affordability risk, according to the central bank.
In case of banks cancelling ATM or debit cards before the expiry date, banks have to pay back a proportional amount of the card fee to clients and when banks issue new cards to replace old ones, they can no longer impose fee charge. However, should the cost of issuing a new card is high, banks can charge clients accordingly, it said.
The central bank also asked banks to adopt four guidelines on interest rates and fee charges: The charges have to reflect real service cost. Banks should not impose excessive burden on clients and have to take into accounts their ability to pay. Banks must not demand duplicate fees from clients. Banks have to disclose list of fee charges to the public.
The central bank will make available each bank’s interest rates and fee charges to the public in order to encourage competition in the market.
The central bank assures the new measures would make people have more confidence in the financial system and support service providers to operate sustainably.