Bank of Thailand Moves to Ease Debtors’ Woes

The Bank of Thailand (BOT) raised its key interest rate by 25 basis points, as widely expected, during a meeting on Wednesday. File photo: Jorge Silva, Reuters.

Thailand’s central bank has allowed debt consolidation across financial institutions to help retail debtors pay lower interest rates, an official said on Monday, as policymakers try to ease the impact of coronavirus outbreaks.

Debtors can combine their unsecured debt with home loans at different banks, rather than at the same lenders as previously, Suwannee Jatsadasak, a senior director at the Bank of Thailand (BOT), told a news conference.

Banks are allowed to charge interest rates on such consolidated unsecured loans, such as credit card and personal loans, not exceeding mortgage rates plus 2% per year, or totalling about 8% currently, she said.

That compares with interest rates on credit card and personal loans of 16% and 25% per year, respectively.

Banks are not allowed to collect prepayment fees until the end of 2023, Suwannee said.

The central bank has relaxed rules on banks’ debt classification, reserve requirements and capital levels to reduce costs for lenders that help with the debt consolidation scheme by the end of 2023, she added.

The debt consolidation is among a series of financial measures to help debtors and businesses, who face the worst financial crisis the country has endured since the late 1990s.

“The measures that the BOT has implemented will enable financial institutions to continue functioning and banks to lend,” Suwannee said.

In the third quarter, banks’ overall loans grew 5.6% year-on-year, up from a 3.7% rise in the previous quarter, as demand from businesses rose along with economic recovery.

Dtac, True in $8.6bn Merger

In other Thai news, Norway’s Telenor and Thai conglomerate Charoen Pokphand Group (CP Group) agreed to merge their telecom units in Thailand in a roughly $8.6 billion deal to create a firm with more than half the mobile subscribers in the Southeast Asian country.

The deal, flagged by Telenor on Friday and subject to regulatory approvals, is likely to give ownership of a third of the merged entity each to Telenor and CP Group.

The partnership will arm the two companies better against current market leader Advanced Info Service Pcl (AIS) and give them a deeper pocket to face mounting investment costs for 5G.

Telenor will merge its Total Access Communication (Dtac) with CP Group’s True Corporation for a share exchange ratio of 10.221 True shares per Dtac share.

The news comes months after Thai power producer Gulf Energy Development offered to buy Intouch Holdings, which controls AIS, though Gulf Energy has only managed to raise its stake in Intouch to 42.3% so far.

Telenor and CP Group’s merged company will have “revenue market share in the low 40% that is similar to AIS,” Telenor CEO Sigve Brekke told media. “AIS is still a big brother when it comes to profitability so we will learn as we go.”

The combined company will be listed on the Thai stock exchange.

‘Hardly Surprising’

“Telenor’s decision to amalgamate its Thailand holdings with True is hardly surprising, given its ASEAN subsidiary’s M&As and exits,” analyst Thapana Phanich said in a co-branded research report from Jefferies and Tisco Securities, referring to a similar deal struck in Malaysia earlier this year.

“Dtac has little hope of beating its rivals, or even surviving, in the long run.”

Telenor believes regulators will view the deal favourably, chief financial officer Tone Hegland Bachke told a conference call.

“We are positive that we will reach regulatory approval,” she said.

The offer of 47.76 baht ($1.45) per Dtac share represents a premium of 15.8% to its Friday close and the offer of 5.09 baht ($0.1549) per True Corp share represents a premium of 17.8% to its close on the same day.

Dtac and True Corp shares rose 10% and 11.5%, respectively, on Monday while the benchmark Thai index was up 0.3%.

Citi is advising Telenor and JPMorgan is advising CP Group.

• Reuters with additional editing by Jim Pollard