4-7-2023 (BANGKOK) The Bank of Thailand is taking decisive steps to alleviate the persistent household debt issue in the country and help consumers break free from the debt cycle more swiftly. In its latest move, the central bank is set to introduce three key guidelines this month, focusing on responsible lending (RL), risk-based pricing (RBP), and macroprudential policy.
According to Suwannee Jatsadasak, the assistant governor for the supervision group at the Bank of Thailand, the regulator will conduct a public hearing on these guidelines. The RL guideline will encourage financial institutions to address persistent debt within the household sector, with particular attention given to revolving loans.
Ms. Suwannee stated, “The central bank aims to prevent households from remaining trapped in a debt cycle for an extended period. Prolonged debt cycles can burden consumers with excessive interest payments compared to the principal loans. However, the exact definition of persistent debt will be determined after the public hearings.”
As part of the household debt solution framework, the Bank of Thailand plans to initially implement official guidelines for RL and RBP to supervise responsible lending practices of financial institutions. However, the decision regarding the implementation of the debt-service ratio (DSR) guideline will require more careful consideration.
Ms. Suwannee explained, “Through an examination of DSR regulations in other countries, the Bank of Thailand found that this measure can impact the accessibility of loans for individual borrowers. Therefore, we need to study this measure prudently.”
Following a redefinition by the regulator, nearly 100% of the country’s total household debt is now under the supervision of the Bank of Thailand. As a result, household debt in the first quarter of this year reached approximately 16 trillion baht, equivalent to 90.6% of the GDP, compared to 86.3% in the fourth quarter of last year.
Additionally, Ms. Suwannee highlighted that special mention (SM) loans, referring to loans where borrowers fail to make payments within 30-90 days of the due date, saw an increase in the automotive sector, accounting for 13.8% of the total outstanding loans. However, the majority (around 60%) of these loans can still be repaid, with only 10% classified as non-performing loans.
Despite the upward trend in interest rates, retail borrowers are unlikely to be significantly affected as loan rate increases have been lower than policy rate hikes. On average, if the policy rate rises by 1 percentage point, a bank’s minimum retail rate would increase by 0.5 percentage points.
Ms. Suwannee reassured that the Bank of Thailand is prepared to engage in discussions with the economic team of the new government to find solutions for borrowers burdened by high interest rates.
