MTC Addresses Uncertainty over Interest Rate Calculation Issue

As reported recently, the publicly-listed company, Muangthai Capital Public Company Limited (MTC), has been conducting business by charging interest rates higher than what the law allows. There hasn't been a definitive decision on what the interest rates should be as of yet. Previously, MTC operated within the legal framework allowing interest and expenses to be charged appropriately, but there hasn't been a clear indication of what 'appropriate' entails. This situation is expected to change with the enactment of the new financial institution regulatory law, anticipated to be implemented by the end of 2018. Consequently, to clarify their business operations, MTC's management has decided to modify their approach by splitting customer accounts into two contracts.

These contracts consist of loans secured against vehicle registration (60-70%) with an interest rate of 15% and nano finance loans (30-40%) with an interest rate of 36%, resulting in an average interest rate of 23%. The nano finance loans represent unsecured loans, with the highest interest rate permissible by the Bank of Thailand being 36%.

The introduction of these loans aims to address the ongoing uncertainty regarding interest rate calculations. However, analysts express concerns about potential non-performing loans (NPLs) that might escalate due to the nature of unsecured nano finance loans. Chuchat Petaumpai, the CEO of Muangthai Capital Public Company Limited, reassured that this concern is unwarranted, citing the company's extensive 25-year experience in debt management. Additionally, approximately 70% of loan applicants are existing customers seeking repeat loans, allowing the company to understand customer behavior and filter those with good repayment histories. Moreover, the company currently provides both secured and unsecured loans, reducing the risk of increased non-performing loans (NPLs). For new customers, the company might increase the number of guarantors.

Regarding provisioning, Chuchat explained that the company has two methods: aging of receivables and a general provisioning formula using PD x LGD. Therefore, the issuance of unsecured loans does not significantly impact the provisioning calculation. Despite concerns, the company's profitability remains at a steady 23%.

Addressing the reports of a group of customers filing a collective lawsuit against the company, Chuchat clarified that it's a petition for investigation rather than a collective lawsuit involving approximately 15 individuals. This matter is in the investigative phase by the court and Chuchat expressed confidence that the lawsuit might not meet the criteria for collective action. Moreover, there are three customers involved in separate cases concerning economic offense allegations amounting to THB 74,000, currently under police investigation. Chuchat emphasized that any potential losses from these cases would likely be limited and reassured investors and analysts.