The Bank of Thailand announced a series of measures aimed at tightening personal unsecured lending, including credit limits for credit card holders with monthly incomes of less than THB50,000 ($1,497) and reducing the maximum credit card interest rate to 18% from 20%.

These new measures take effect on 1 September. The new credit limits (see Exhibit 1) are credit positive for Thai banks because they strengthen underwriting standards and will moderate growth in the personal-loan segment, which has contributed to a high level of household debt and an increase in nonperforming loans (NPLs).

According to the Bank of Thailand’s 2016 Financial Stability Report, household debt was 79% of GDP as of first-quarter 2017. Debt growth was slower in 2016 than in 2015, but still outpaced income growth, especially for low-income, agricultural households and households operating small and midsize businesses.

The new limits will discourage further leverage among these borrowers, and ease their debtservicing burden. The banks we rate that would most benefit from the new regulations are CIMB Thai Bank Public Company Limited (Baa2 stable, ba22 ) and Bangkok Bank Public Company Limited (Baa1 stable, baa2), which had the highest growth rates in personal and credit card loans in 2016. CIMB Thai in particular will benefit because it has the highest share of these loans in its portfolio.

The new income-based credit caps will limit banks’ exposure to these higher-risk loans (see Exhibit 2).

Daphne Cheng, Vice President – Analyst, Financial Institutions Group, excerpt taken from an article from “Moody’s Credit Outlook”, 31 July 2017 issue.