Amid tighter financial conditions, some individuals may find it more difficult to access bank loans, particularly through traditional lending channels.
As banks and digital lending platforms look beyond conventional credit assessments, risk-based pricing (RBP) and alternative data are emerging as new tools to widen access to credit and offer more competitive borrowing costs to customers with stronger credit profiles.
Risk-based pricing
TMBThanachart Bank (ttb) is the first bank in Thailand to introduce an RBP model that uses borrowers’ National Credit Bureau (NCB) records to determine interest rates.
The bank introduced the model in February, initially for its personal loan product ttb Cash2Go. Under the new approach, interest rates start at 13.99% per year, below the 25% statutory ceiling set by the Bank of Thailand.
The new credit assessment means borrowers with good repayment records can benefit from lower borrowing costs. Since the introduction of the new credit-scoring approach, more than 80% of customers approved for personal loans have received interest rates that are five percentage points lower on average than rates offered under traditional assessment criteria.
“We have approved loans for around 28,600 applicants, with a combined credit line of 5 billion baht. The bank expects to help them save more than 800 million baht on interest payments over the loan terms,” said Thakorn Piyapan, president of ttb.
Encouraged by the results, the bank expanded RBP to its car title loan product this month. Interest rates under the RBP approach begin at 11.11% per year, compared with market rates of up to 24%.
Mr Thakorn said car title loan borrowers traditionally faced relatively high interest rates because lenders mainly considered the age of the vehicle when setting rates. Ttb Drive accepts vehicles up to 20 years old and covers both debt-free vehicles and the refinancing of existing car title loans from other financial institutions.
From August to December this year, ttb aims to approve 14,000 loans worth a combined 5 billion baht. The bank expects the RBP model to help customers save up to 1 billion baht in interest payments over the loan terms.
Alternative data
The emergence of virtual banks is expected to accelerate the use of alternative data in credit assessment. Clicx Bank, Thailand’s first virtual bank, is already using alternative data in assessing applications for its Clicx Ready digital loan.
Clicx requests applicants consent to the bank accessing information from three partners: Krungthai Bank, Advanced Info Service and PTT Retail and Oil Business.
Applicants who give consent are more likely to be approved and have a shorter approval process, although the bank has a maximum processing period of 15 days after an application is submitted, according to the platform.
If borrowers’ information is incomplete or insufficient, the bank may request traditional data, such as bank statements. NCB credit records can also be used in the assessment.
Line BK, one of Thailand’s earliest digital banking platforms, has used alternative data since it began operations in October 2020 through its KLine Score. The score combines data from its major shareholders, Kasikornbank and Line Corporation.
Data generated by Line users is an important source for the platform, which has access to a user base of around 56 million.
However, Line BK has spent years developing its proprietary credit-scoring system, improving data accuracy and strengthening its artificial intelligence capabilities, said Tana Pithikamjorn, chief executive of Kasikorn Line Co, which operates Line BK.
The platform statistically analyses Line users’ chat patterns, without accessing the content of their conversations. For example, it examines the speed and consistency of message interactions to identify behavioural patterns that may indicate a user’s discipline and habits.
These insights allow the platform to gain a deeper understanding of borrowers’ financial behaviour and habits, he said.
Discipline still key
Krungsri Consumer, the unsecured lending unit of Bank of Ayudhya (Krungsri), also uses alternative data when considering additional credit lines for existing customers, according to Atis Ruchirawat, head of the unit.
For example, the company analyses customers’ spending patterns. Larger purchases or spending on more premium products may indicate higher purchasing power or income, allowing the lender to consider offering an additional credit limit.
Mr Atis, who is also president of the Credit Card Club, said regardless of the credit-scoring model, traditional or alternative, lenders ultimately place a high priority on borrowers’ financial discipline.
Maintaining good financial discipline is not only a way for borrowers to protect their credit profiles, but also a key to accessing financing that is better suited to their financial circumstances, he said.