Are Thai banks ripping off consumers?

Thai banks are not regionally competitive is because the market is restrictive

When one wonders 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 the airports.

Until the recent economic slow-down, the profitability of Thai banks has been very high, relative to banks around the rest of the region.

This prompts the questions; Are Thai bank charges high in the region?, If so, why are they so high?, and, Are consumers being ripped off?

The current mortgage lending rate in Thailand is 12.0%. This could be considered one of the highest in the region today when compared with 10.50% in the Philippines, 11.0% in Indonesia, 10.50% in Malaysia, and 10.99% 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%. This compares with the Philippines which is also 0.5%, Indonesia, at 2.0%, Malaysia, at 2.45%, and Australia at 5.13%.

Fixed deposit rates in Thailand are also among the lowest in the region with deposit rates between 1.15-2.80%. 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%, with Malaysia offering above 4.2%, Indonesia 6.5%, and Australia 3.25%.

Some of the most common complaints about Thai banking charges is the 2-5% withdrawal fee on international credit cards. There have also been a number of complaints about an extra 150 Baht hidden charge on foreign debit/credit cards in ATMS that shows up as an extra amount withdrawn on statements.

Hidden bank charges also occur when statements are requested (200Bht), and if any letters in regards to accounts are required by customers (200Bht), i.e., 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 Bht, and then run up to over 1,000 Bht on amounts above 100,000 Bht at some banks. Thai banks usually charge between 15-30 Bht for ATM withdrawals across their defined banking districts. This charge is in addition to the ATM service charge, which ranges from 10-25 Bht per transaction.

A range of charges occur for commercial and credit card facilities across the spectrum of transactions. Credit card services generally carry a 20.0% p.a. interest rate, one of the highest in the region.

Bank charges are periodically being added to like the coin counting charge of 1% 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.

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% 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 paramount 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 Chinese-Thai families as extensions of their business empires. The exceptions to this was 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 where Citibank, HSBC, and Standard Chartered have only a limited number of branches. Only the Malaysian based bank CIMB Thai has established over 160 branches around Thailand in retail banking.

The Thai banking sector badly needs a new competitor which 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 less, but bigger banks.

Consumers are unlikely to get any better deal off the banks in the near future.

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 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 cheaper 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 micro-SME development could be a strategy to help stave off economic hardships with the coming recession. 

Originally published in Asian Correspondent 15th November 2015

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