Should Thai banks be worried about regulator's plan to curb interest charges?

It may prove disruptive to banks.

The plan of the office of the consumer protection (OIC) to curb interest charged to borrowers on leasing contracts may prove disruptive to banks, but analysts are suggesting otherwise.

According to a report by Maybank Kim Eng, banks shouldn’t be significantly impacted, as their current interest rates are already below the proposed maximum 15%.

“We tentatively opine that the impact from this to banks/leasing firms under our coverage is limited. The leasing contracts in those companies (TCAP, KKP, TISCO) are mostly, if not all, for cars. The interest rates charged on car loans typically are lower than the aforementioned proposed rate,” the report noted.

Meanwhile, the report noted that motorcycle leasing, especially motorcycle-for-cash loans, typically charge interest rates higher than 15% as the quality of borrowers under this group is lower and the price of used motorcycles normally depreciates faster than cars.

“Thus, the impact to companies that have this kind of loans in their portfolio should be more pronounced. The market perhaps shares our views as the stock price of such companies (eg SAWAD TB and MTLS TB; both are not rated) plunged as much as 7% on Friday when the news broke in the morning session before recovering somewhat in the afternoon session,” the report noted.