More unfavourable regulations to impact Thai banks

Policies may even target leasing companies as well.

Maybank Kim Eng anlaysts note that the government’s recent policies have been unfavourable to financial institutes. For instance, commercial banks’ lending rate cuts in May were possibly a case of moral suasion, in our view.

Later with BOT’s interest rate cut for credit card business, banks’ margins will be lower, which will see more impact in 2H17. Some policies such as higher penalty for illegal migrant employments, may affect banks indirectly.

Here's more from Maybank Kim Eng:

We expect more unfavourable measures to financial institutions in the future. Policy makers believe Thai banks’ margins have more room to come down, especially when compared with banks in the region.

More moral suasion is possible, as it already happened two times in the past 12 months. We expect more measures to help struggling borrowers, especially lower-income households or SMEs and that will be at the expense of banks via higher opex/ credit cost.

Policy makers also are concerned about household debt, which looks high particularly among lower income borrowers/first jobbers. According to a study by PIER, the BOT’s economic think tank, approximately half of the working age population now have debt. Those with debt also have had debt since a young age. The number also has been increasing over time.

This is the main reason behind BOT’s recent move to cut credit line/personal loans for applicants who have salary lower than 30k, in addition to a 2ppt credit card rate cut to 18%.

These new rules apply to financial institutions under the BOT’s supervision only. We believe the policy maker is unlikely to stop here. We expect more of this kind of measure and it may target those that are not under the BOT’s supervision such as leasing companies next time.