Economists and various other parties have expressed deep concern over Thailand’s soaring household debt. Despite the Bank of Thailand’s adjustment in calculating household debt, which will take effect from the first quarter of 2023, total household debt has reached 16 trillion baht, accounting for 90.6% of the country’s GDP.
Dr. Somprawin Manprasert, Vice President CEO of the Corporate Strategy Group and Economic Intelligence Center Group at Siam Commercial Bank, warns that the high level of household debt will eventually impact the government. As the state provides financial assistance and implements policies, public debt will increase, reaching 70-80% of GDP. This, in turn, will have a significant effect on the country’s credit rating and overall stability.
Dr. Somprawin adds, “This escalating household debt will eventually transform into public debt, presenting a long-term issue that must be addressed within the next ten years.”
Danucha Phichayanan, the Secretary General of the National Economic and Social Development Council (NESDB), acknowledges the difficulty in resolving the household debt issue. He highlights the continuous increase in specific debt segments, particularly special mention loans (SM), as well as credit card and cash card debts.
Bank of Thailand Aims to Reduce Debt to Less Than 80% of GDP
The Bank of Thailand has recently announced its plan to adopt a sustainable approach to tackling the household debt problem. By the end of July, they aim to reduce household debt to below 80% of the country’s GDP.
Suwannee Jetsadasak, the Assistant Governor of the Financial Institutions Supervision Group at the Bank of Thailand, explains that their solution will encompass all aspects of the debt cycle for various groups. These include current non-performing loans (overdue for more than 90 days), chronic debts that are not necessarily bad debts but cannot be repaid, rapidly increasing new debts, and informal debts. The Bank aims to execute an accurate, principled, and collaborative debt solution that involves all stakeholders.
The Bank of Thailand will implement the following guidelines:
- Responsible Lending (RL) criteria, which ensure fair and responsible lending practices throughout the debt cycle. These criteria also provide appropriate support for debtors in need, particularly chronic debtors who require assistance in repaying their debts.
- Risk Based Pricing (RBP) mechanism to promote fair treatment and access to credit for debtors. This mechanism ensures that low-risk debtors receive lower interest rates, while high-risk debtors are granted appropriate credit access.
- Macroprudential Policy Measures (MAPP) that encourage creditors to grant credit based on the debtor’s repayment ability, ensuring they have sufficient income to cover living expenses and prevent over-indebtedness.
Schemes related to responsible lending and chronic debt relief will be implemented first, followed by the risk-based pricing measure. The adoption of macroprudential policy measures will be considered based on the economic context.
Banks Support Chronic Debt Relief Measures
Sakchai Phichapat, CEO of TISCO Group, emphasizes the importance of updated data on household debt, which includes various types of debts. This comprehensive perspective allows for targeted problem-solving and differentiating between good debts that generate income and bad debts.
He suggests addressing consumer debts, which may require a halt to aggressive marketing strategies, as well as chronic debts that debtors struggle to repay. The inclusion of informal debts, which were previously overlooked, facilitates better policy implementation and management of the debt situation.
Sakchai further explains, “The Bank of Thailand is taking the right steps. Banks, non-banks, and the Bank of Thailand must collaborate to resolve urgent issues, particularly chronic debts that debtors cannot fully repay. The majority of these debts are revolving loans, such as overdrafts, where debtors struggle to reduce the principal amount.”
He also suggests the involvement of the government in tackling chronic, consumer, and informal debts. Additionally, the Bank of Thailand aims to help these individuals by establishing a virtual bank to provide support and assistance. An integrated system involving all stakeholders is believed to contribute to the improvement of household debt.
Forcing Banks to Reduce Interest Rates by 50%
According to sources within financial institutions, the Bank of Thailand is preparing measures to address chronic debt problems in retail loans, including home loans, car loans, personal loans, and credit cards. The proposed measures include implementing a “raw deduction” policy, whereby borrowers who are chronically in debt must pay more interest than the principal amount in the first two years or 24 installments.
Warning letters will be issued to borrowers falling within this category during the second year. If the situation does not improve by the third year, borrowers will be classified as being in “PD” status, indicating chronic debt. This measure aims to compel borrowers to engage in a correction process.
The sources suggest that financial institutions have been charging significant interest to customers by the third year. In response, a debt clinic-like project will be introduced, resulting in a 50% reduction of interest rates for creditors. For example, credit cards charging 16% interest will lower it to 8%, with payment terms set at 18 installments or a year and a half. This approach will assist in reducing household debt, aligning with the target set by the Bank of Thailand.
However, these guidelines are expected to have some side effects. These include a significant decline in bank and non-bank stocks, a need for clarity in defining chronic debts, and finding appropriate solutions for home loans where interest payments exceed the principal amount in the initial years.
It is crucial to closely monitor the measures the Bank of Thailand will introduce by the end of this month. The clarity and flexibility of these measures will be key in preventing unintended consequences.
Thai home debt problem That’s what economists As well as many other parties are very concerned. because it is at a relatively high level Even after the Bank of Thailand (BOT) adjusted the new way of calculating household debt, from Q1/2023, household debt rose to 16 trillion baht, accounting for 90.6% of GDP.
“Dr. Somprawin Manprasert” Vice President CEO Corporate Strategy Group and Economic Intelligence Center Group (EIC), Siam Commercial Bank said household debt is high Finally, it will affect the government. Because the state will have more debt by making policies. grant And while helping many, the public debt will increase to reach 70-80%, which will affect the country’s rate. If Thailand’s rating is lowered, it will affect everything.
“Finally, it will become household debt, transferred to public debt. This will be an explosion through the financial sector, not an explosion through the banking system, but this is a long-term issue in the next 10 years if it is not resolved.”
while “Danucha Phichayanan” The Secretary General of the National Economic and Social Development Council or “NESDB” said that household debt When a lot happened, it was difficult to solve, which at the moment, the debt in some segments tends to increase constantly. which is special mention loan (SM), which is increasing every quarter, another part is credit card debt and cash card debt which has expanded significantly in the last 3-4 quarters
Bank of Thailand set debt target below 80%
The Bank of Thailand recently announced that it will publish a sustainable approach to solving household debt problems by the end of July, with the aim of trying to reduce household debt to less than 80% of GDP.
by “Suwannee Jetsadasak” assistant governor Financial Institutions Supervision Group, BOT said the solution will cover the entire debt cycle of 4 groups, starting from 1. NPLs that currently exist. (overdue by more than 90 days), especially debts incurred during COVID (code 21) 2. Debt that is a chronic problem Not bad debt but can’t close 3. new debt that increases rapidly and 4 .informal debt It is a complete debt solution, accurate, principled and cooperates with all sectors.
about the guidelines The BOT will implement, namely, 1) Responsible Lending (RL) criteria which require creditors to give credit responsibly and fairly throughout the debt cycle. since before debt While in debt, there is a problem with selling debts. Debtors must receive appropriate, timely, quality and sufficient support, with guidelines for chronic debtor care. to see the way to close the debt
2) Risk Based Pricing (RBP) Mechanism to promote credit access in the system and help debtors pay risk based interest rates and be treated fairly. The key principle is that low risk debtors deserve lower interest rates. and increasing access to credit in the system for high risk debtors
and 3) Macroprudential Policy Measures (MAPP) to allow creditors to grant credit according to their ability to repay debt. and the debtor has enough money left to live on It does not lead to over-indebtedness, for example, debt management is not too high compared to monthly income (DSR)
“Schemes implemented on behalf of RL and chronic debt relief will come into effect first. This will be followed by the RBP measure, and in the case of MAPP, its adoption must be considered according to the economic context.”
Bankers support chronic debt relief
“Sakchai Phichapat” The CEO of TISCO Group said that updating the data on household debts includes other types of debts. As a result, the debt-to-GDP ratio increased to 90.6%, which helped to see more comprehensive debt information. And able to focus on solving problems at every point, not throwing nets and being able to separate debts from which group It’s good debt that generates income. or bad debt
such as consumer debt That may have to stop prompting 0% advertising or chronic debt that the debtor cannot finish the debt. The inclusion of informal debt, which the BOT sees more clearly, will have a positive impact on policy implementation. Because it brings out the debt that was previously hidden under the invisible rug, making it easier to manage and to the point.
“The Bank of Thailand is moving in the right direction. Banks, non-banks and the Bank of Thailand must work together to solve problems. Especially chronic debt that needs to be resolved urgently. because the debtor does not finish paying the debt Most of them are revolving loans (O / D), for example, credit limit of 100,000 baht, interest of 24%, interest of 24 thousand baht, average installment of 2,000 baht, the debt does not decrease.
But if it’s a loan with installment payments Same credit limit, 8% interest, customers can pay off debt within 5 years, so they have to work together to make the whole system. Bad debt must be effectively reduced, such as consumer debt, chronic debt, or informal debt. The government may have to get involved, and the BOT is trying to help these people get into the system by setting up a virtual bank.
support this group, so if we can do it together as a whole system We believe that household debt will improve,” said the CEO of TISCO.
Force banks to cut interest rates by 50%
On the side of “news sources from financial institutions” he said that he is now aware that the BOT is preparing to solve chronic debt problems in retail loans. including home loans, car loans, personal loans and credit cards as a “raw deduction” by defining people who are chronically in debt Having to pay more interest than the principal over the first 2 years or 24 installments
which, if any borrower, falls within the category A warning letter will be issued in the 2nd year and if it is not improved in the 3rd year, it will be stuck in “PD” status, ie chronic debt. This will be a measure to force it into the corrections process.
“BOT sees that financial institutions have already gained a lot of interest from customers in the third year. are forced to enter a project similar to a debt clinic by attaching a “blacklist” to such debtors AND letting creditors of financial institutions reduce interest by 50%, for example, credit cards that pay 16%, leaves 8% and sets the payment period to finish within 18 installments or a year and a half.
As with Pelone, reduce the interest from 24% to 12% and complete the payment within 48 installments or in 4 years, during which time the debtor will not be able to borrow again. will reduce household debt in line with the target.”
The source also said, however, following the above guidelines, this will cause quite a few side effects, namely 1. Bank and non-bank stocks will fall heavily 2. The interpretation of chronic debt be clear, otherwise it can be wrong and 3. Home loans that In the first years, interest will be paid more than the principal. how to clear
You will have to follow up on the measures that the BOT will come out with at the end of the month. Will this July be more flexible? Because if it’s too dark, there will be a size effect.
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