Credit-card holders must repay their outstanding balances before July next year, otherwise they will be charged the same 20-per-cent interest rate that new debtors will face from December 1.

The Bank of Thailand (BOT) has lifted the interest-rate ceiling of credit-card loans to 20 per cent a year as requested by the Credit Card Club since the middle of this year. But the 2-per-cent increase is lower than the private sector's proposal.

Assistant BOT governor Krirk Vanikkul said the measure was aimed at establishing fairness between consumers and card issuers, whose operating costs have increased in accordance with market rates while the interest rate has not been raised.

The repurchase interest rate has risen to 5 per cent from 3.75 per cent at the end of 2003 when the rate ceiling of 18 per cent was applied. The Minimum Lending Rate (MLR) is currently 7.75 per cent, a large jump from 2 per cent. The three-month deposit rate rose to 3.5 per cent from 2.5 per cent in the same period.

Krirk said the new ceiling was low compared with those in other countries. For instance, the rate is set at 29 per cent in Japan while other countries have no ceiling.

"This does not mean that the issuers must raise the rate in line with the ceiling. Some banks tell us they will not raise the rate because they want to maintain market strategy," he said.

Currently, most card issuers charge the full interest rate of 18 per cent.

The central bank set a time line allowing existing debtors another seven months to comply with the new rule.

From April next year, existing debtors will be required to repay their balances at a minimum of 10 per cent of the outstanding sum, up from the current 5 per cent.

According to the new regulation, those who have more than Bt500,000 in their deposit accounts or own debentures issued by banks and state enterprises worth more than Bt1 million are eligible to apply for a credit card. The credit line for this group is 10 per cent of total savings.

Earlier, following the BOT's regulation, only those whose salaries were higher than Bt15,000 a month could apply for a credit card.

Krirk believes the increased ceiling will not hurt domestic consumption. He encouraged consumers to spend less than the amount they earn.

Outstanding loans have significantly decreased since the BOT launched a package of measures to cool the credit-card business in 2002.

Krirk said non-performing loans were below 3 per cent as the issuers had enough reserve provision and write off bad debts when they arise.

Krisada Lamsam, first senior vice president of Kasikornbank, said the new regulation will not affect customers much. However, customers need to control their spending and debt repayment.

"The new regulation will decrease the bank's funding cost, which will increase the spread. The bank has now started to inform customers. We expect our customers will be ready on time," said Krisada.

Anoma Srisukkasem

Somruedi Banchongduang

The Nation