Are Thai banks ripping off consumers?

A Thai woman walks in front of an advertisement poster of Krungsri Ayudhya Bank in Bangkok , Thailand. Pic:
AP.

by Murray Hunter-5th November 2015

WHEN one wanders around Thailand today, so many people can be seen
struggling with their loan and credit card repayments to banks. There are
always complaints by expats of unreasonable bank charges on the pages of
bulletin boards, whereas on travel pages there are warnings about poor
Thai bank foreign exchange rates at airports.
Until the recent economic slow-down, the profitability of Thai banks had

been very high, relative to banks around the rest of the region.
This prompts the questions: Are Thai bank charges high compared to other
countries in the region?, If so, why are they so high?, and, Are consumers
being ripped off?
The current mortgage lending rate in Thailand is 12 percent. This could be
considered one of the highest in the region today when compared with 10.5
percent in the Philippines, 11 percent in Indonesia, 10.5 percent in
Malaysia, and 10.99 percent in Australia.
Yet, the cost of Thai money through deposit rates paid on savings accounts
is the cheapest in the region at just 0.5 percent. This compares with the
Philippines which is also 0.5 percent, Indonesia, at 2 percent, Malaysia, at
2.45 percent, and Australia at 5.13 percent.
Thai households have now got themselves into a debt trap which
will be difficult for many to get out of.
Fixed deposit (FD) rates in Thailand are also among the lowest in the region
with deposit rates between 1.15-2.80 percent. FDs are not rolled over to the
best rates on maturity, and thus require a request from the customer for
the highest rate. This compares to the Philippines at 1.5 percent, with
Malaysia offering above 4.2 percent, Indonesia 6.5 percent, and Australia
3.25 percent.
Some of the most common complaints about Thai banking charges is the 25 percent withdrawal fee on international credit cards. There have also
been a number of complaints about an extra 150 baht
(US$4.22) government charge on foreign debit/credit cards at ATMS that
shows up as an extra amount withdrawn on statements.

Bank charges also occur when statements are requested (200 baht), and if
any letters in regard to accounts are required by customers (200 baht), e.g.,
a letter to immigration stating a bank account balance for a visa. Some
banks even charge a small fee for updating bank books.
Thai bank computer systems are centralized, yet Thai banks, unlike most
other banks within the region, still charge for paying in money to accounts
held at the bank at different branches. They are treated as bank transfers
where fees start at 30 baht, and then run up to over 1,000 baht on amounts
above 100,000 baht at some banks. Thai banks usually charge between 1530 Bht for ATM withdrawals across their defined banking districts. This
charge is in addition to the ATM service charge, which ranges from 10-25
baht per transaction.
A range of charges occur for commercial and credit card facilities across the
spectrum of transactions. Credit card services generally carry a 20 percent
p.a. interest rate, one of the highest in the region.
Other bank charges are periodically being added, like the coin counting
charge of 1 percent put into effect a couple of years ago.
Thai interest rates and bank charges can be considered some of the highest
in the region. Thai consumers are paying higher costs for banking services
and loans, and being paid the least in interest for the money they deposit in
banks.

Thailands excise exemption on new cars but thousands of new vehicles on

the road, but many cant afford them. Pic: AP.
This is at a time when the economy is slowing down, and the velocity of
money is stalling, making it difficult for Thai households to make loan
repayments, especially the self-employed. One of the spin-offs of the excise
exemption on new cars two years ago is the increasing number of vehicle
repossessions due to loan defaults. Non-performing loans (NPLs) are
increasing rapidly in Thailand, which is now starting to put a squeeze on
bank profitability.
Thai households have now got themselves into a debt trap which will be
difficult for many to get out of. As unemployment is increasing and more
small businesses are going bankrupt, there is likely to be a major increase
in non-performing loans.
Unless the Thai economy shows some improvement within the next few
months, the debt trap could start bringing many more Thais into a financial
abyss, which could lead to increased social hardship, especially
where 56 percent of Thais are unable to save for the future.

This is the Achilles heel of Thai banks which have been relatively prudent
on lending, and reported to be relatively strong within the region. With Thai
banks raising reserves to make provisions for the increase in NPLs, the
current regime of bank charges and interest rates will be crucial in
maintaining profitability.
Part of the reason Thai banks are not regionally competitive is because the
market is restrictive. Most of the local Thai banks were started by ChineseThai families as extensions of their business empires. The exceptions to this
was Siam Commercial Bank (SCB), which was opened by Royal Charter in
1907 and TMB Bank, which was set up to provide banking services for the
military and its personnel.
Generally, foreign banks have been restricted in their local operations.
Citibank, HSBC, and Standard Chartered have only a limited number of
branches. Only the Malaysia-based bank CIMB Thai hasestablished over 160
branches around Thailand in retail banking.

With Thai banks raising reserves to make provisions for the

increase in NPLs, the current regime of bank charges and interest
rates will be crucial in maintaining profitability.
The Thai banking sector badly needs a new competitor that will force the
existing banks to offer more competitive rates. However this is very unlikely
in the near future, as it goes against the gain of conventional banking policy
to have fewer, but bigger, banks.
Thai banks have made bumper profits over the last few years, especially
with the easy lending policies they adopted back in 2012. With the slowing

economy, China slowdown, and a military junta yet to be business friendly,

more SMEs will close in the future, putting a profitability strain upon the
banks. This will be a challenging time for Thai banks, where they will be
unlikely to grant any charge or interest relief to consumers.
The banks will more likely to be heavily involved in the foreclosure of
mortgages and repossession of goods bought through loans, adding to
consumer problems in daily life.
However, Thailand does have a secondary banking system in operation, the
cooperative system.Savings and credit cooperatives are non-profit
operations run primarily in rural areas, of the people, for the people, and by
the people. They offer much higher savings rates and lend out money much
more cheaply than commercial banks. According to saving cooperative
managers that the writer has spoken to, loan defaults are extremely low
due to borrowers being members of the local communities.
The savings and credit cooperative system along with a revival of microSME development could be a strategy to help stave off economic hardships
with the coming recession.
Posted by Thavam