Phase II guidelines to assisting retail customers Emphasis on interest rate cuts and debt restructuring may put more pressure on operating performance (Business Brief No.3872)

            The Bank of Thailand (BOT) is forging ahead with its Phase II package of relief measures for small borrowers, which will emphasize relieving the financial burden of retail debtors by lowering the interest rate ceiling on credit cards and personal loans, as well as cutting the interest rate for refinancing debts into long-term loans. This also includes debt restructuring processes to help reduce the amount of monthly installment payments for debtors, extension of repayment periods and enhancement of these borrowers' debt servicing ability in a manner consistent with their cash flows.

            Regarding the impact on commercial banks, KResearch assesses that the interest rate cuts on credit card and personal loans for small retail debtors based on such a scheme will impact commercial banks' income through interest on loans, starting in 3Q2020. Preliminarily, these interest rate cuts are expected to be felt among retail customers during 3Q2020, costing commercial banks THB 1-2 billion, or approximately 0.8-1.5 percent of their interest income, in 3Q2020.

            An additional issue that will need to be monitored in 3Q2020 is the extent to which debtors who have subscribed to Phase 1 relief measures will be able to repay their debts once the COVID-19 crisis subsides. KResearch views that, under the current economic conditions – which have yet to return to normal – the majority of debtors may choose to either reschedule their debts or maintain their debt moratoriums. This particular variable will compel commercial banks, along with other financial institutions including specialized financial institutions and non-bank players, to lay out assistance plans for their customers while also making adjustments to strategies to relieve the resulting pressures on operating performance.

​            Although the Thai banking system is due to encounter continuous challenges in 2H2020 – from the impact of economic woes on customers' status to the outcomes of various measures that have been issued to help customers in line with the policymakers' guidelines – so far, all commercial banks have prudently laid out their strategies, adjusted their business plans, adopted sound risk management, and continue to possess high capital and reserve bases. As of the end of April 2020, domestically-registered commercial banks have a total capital fund of THB 2,616,272 million, or a capital adequacy ratio of 18.9 percent, which is considerably stronger than the BOT's minimum capital requirement of 11.0 percent; whereas the NPL coverage ratio is currently at 140 percent – a figure sufficient to cope with potential risks during the remainder of 2020.