Tisco Bank to limit damage as rates rise

Tisco Bank is likely to settle for conservative growth in auto loans over the next few years as it aims to manage financial costs amid the upward trend in interest rates.

Given that the typical auto loan charges a fixed interest rate for up to five years, the bank could suffer from future interest rate increases if it extends such loans too aggressively at the moment, said president Sakchai Peechapat.

Cost management in tandem with interest rates and the business cycle is the key factor that contributes to the profitability of auto lenders.

Tisco Bank aims for auto loan growth in a range of 3-5% this year after the first half delivered 0.30% growth from the end of last year.

With higher new-car sales in the second half, auto loan demand is expected to improve in the first half, Mr Sakchai said.

Auto loans are the bank’s core business, with a portfolio of 130.11 billion baht representing 54.8% of loans outstanding as of June.

The bank started to increase its flat rate for new cars by 10 basis points from the beginning of this month, in response to the upward interest rate trend and positive demand for car sales and auto loans in the second half.

Thailand’s new-car sales for 2018 are expected to reach 1 million units after 450,000 sold in the first six months.

Mr Sakchai forecasts the overall auto loan rate for new cars to rise by a quarter percentage point this year.

To manage financial costs amid the upward interest rate trend, Tisco Bank plans to issue debentures with a maturity of 18 months, in addition to deposit mobilisation, in a move that the bank expects to help increase its interest income this year.

At the same time, another auto loan player, Kiatnakin Bank (KKP), seeks to maintain its financial costs at the current level of 2.3% through year-end by focusing on highyielding auto loans, said head of finance and budgeting Chavalit Chindavanig.

KKP’s auto hire purchase portfolio at the end of June amounted to 106.86 billion baht, of which high-yielding used-car loans made up 40%.

The interest rates for used-car loans are 3-4 percentage points higher than those for new-car loans.

Auto loans accounted for 50.2% of KKP’s loans outstanding at the end of June.