More cards, less default, study finds

Cardholders with a stack of plastic in their wallets have lower default rate than those with only one or two cards, unlike personal loan debtors with multiple creditors, who tend to default more, say researchers at the central bank’s think tank.

“Debtors with multiple credit cards tend to default less compared with those holding fewer credit cards,” said Atchana Lamsam, head of networking and communications at the Puey Ungphakorn Institute for Economic Research (PIER), citing a study entitled “Thailand’s Household Debt Through the Lens of Credit Bureau Data: Borrower’s Portfolio and Behaviour”.

The usage rate for credit cards decreases as the number of cards per person increases, reflecting the fact that those with more plastic cards have high income and better repayment behaviour, she said.

“The findings in Thailand contrasts with the credit card crisis that happened in South Korea, which was mainly caused by debtors with multiple credit cards,” said Ms Atchana.

The study dug deeper and found that cardholders aged 25-45 tend to default more than other age segments.

The situation is reversed when it comes to personal loans, as debtors with a higher number of loan contracts or creditors tend to default more than those with fewer contracts.

Personal loan borrowers aged below 25 are the most vulnerable, while those aged above 60 should be closely monitored, said Ms Atchana.

Credit cards and personal loans are more readily accessible financial products, accounting for 70% of total debtors. Such loans also entail higher delinquency rates than other types of loans, she said.

The findings have been taken into consideration for the Bank of Thailand’s latest regulations, which is tightening criteria for credit cards and personal loans in a bid to lower the country’s household debt.

Sommarat Chantarat, head of the financial systems section at PIER, said the study also found that the concentration of loan categories varied across the country.

Debtors in the North and Northeast have the highest percentage of business loans at 40% of total outstanding loans, with most of them are indebted to specialised financial institutions as they are farmers.

In Bangkok, credit card loans and mortgages grabbed the largest portion of the total retail loans outstanding, said Mrs Sommarat.

To solve the farmer’s vicious cycle of debt, financial institutions should offer more suitable products, such as risk-contingent credit which will provide coverage for damaged crops from natural disasters,” she said.