Thai Banks Learn a New Word: Plastic

But competing with the likes of HSBC and Citi will be tough

Pakrit Thanalapsakun had been thinking about taking up golf as a way to help his business career. So when HSBC Holdings PLC (HBC ) offered a free lesson to Visa cardholders, he seized his chance. After one session at Bangkok's Number One driving range, the 26-year-old software engineer was hooked and signed up for 24 more. Smart move by London-based HSBC: Pakrit used his card to pay for $800 worth of lessons. "It's a win-win situation," says Soparvan Chantha, who runs HSBC's credit-card business in Thailand. "The customer is happy, and we are happy."

The golf giveaway demonstrates how aggressively foreign banks are targeting the Thai consumer these days. Thanks to such incentives, the likes of HSBC and Citibank (C ) have carved out a big slice of Thailand's growing market for consumer credit. Caught napping are the local banks: Since the Asian financial crisis, they have been too busy ridding themselves of dud corporate loans to pay attention to their retail operations. Now, with corporate lending stagnant and shoppers spending, Thai banks are belatedly waking up to the potential of consumer credit. "It has taken a long time to dawn on [Thai] banks that this is an area to focus on," says Andrew Maule, an ABN Amro Asia Securities banking analyst in Bangkok. "They're playing catch-up."

The stakes are high. A nation of 66 million, Thailand is one of the fastest-growing consumer-credit markets in the world. Visa, which claims nearly 80% of Thai card-sales volume, says total spending for its cards jumped 48% last year. There's plenty of room for growth. Credit-card spending accounts for just 3.73% of personal consumption (compared with 18% to 20% in the U.S.), and fewer than 1 in 25 Thais use plastic. Over the next 12 months, the number of cards in circulation is expected to double, to 5 million.

Hence the scramble by local banks and financial institutions to get a piece of the action. It will take some doing. With their marketing savvy, financial muscle, and long experience in assessing credit risk, foreign banks have a definite edge, and it shows. Citibank is Thailand's largest credit-card issuer, with half a million customers--no mean feat for a bank with one branch nationwide. HSBC is gaining fast, increasing its customer base from 80,000 18 months ago to 230,000 today. Visa International estimates that foreign issuers account for 57% of Thai credit cards.

Although they lack the sophisticated credit-risk systems and range of products of foreign companies, local banks are fighting back. They are using various strategies to take on foreign rivals, ranging from low interest rates to traditional incentives. Since March, Bangkok-based Bank of Asia PLC has issued 25,000 of its Asia Lady MasterCards with a program (aimed at women) that promises free roadside assistance to drivers. Thai Farmers Bank PLC rewards spending by giving away cash vouchers at top boutiques and restaurants. And Krungsri Card Co. Ltd., a tie-up between GE Capital and Bank of Ayudhya PLC, has been waiving annual fees in perpetuity. These banks are offering interest rates as low as 17.25% on unpaid balances, compared with Citibank's 26.5%.

Thai banks also are eager to pit their credit cards against the installment loans provided by consumer-finance companies. Currently, such operations run by GE Capital, Cetelem of France, and Japan's Aeon provide financing for 70% of such big-ticket durables as washing machines, furniture, and TVs. With annual interest rates of 30%, these loans are very lucrative. But the foreigners are about to get some competition. In May, the central bank removed a $365 minimum monthly income requirement for credit-card applicants. That will allow banks to compete with consumer-finance companies that aren't subject to such regulations. Krung Thai Bank PLC has started offering cards to people earning just $180 a month. Now, a whole segment of the population previously served by installment loans can qualify for a card.

While some fear a consumer-credit bubble is in the making, so far, Thai consumers are paying their bills. The credit-card delinquency rate, at 7%, has fallen since the Asian crisis. And while card issuers are increasingly targeting lower-income people, SG Asia Credit Securities banking analyst Andrew Stotz argues that these folk are a better credit risk than their wealthier counterparts. "They're the salt of the earth," he says, "and they pay." Music to the ears of banks everywhere.

By Frederik Balfour in Bangkok

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