Thai Central Bank Mulls Steps to Lower ‘Worrying’ Household Debt

Thailand’s central bank is preparing a series of regulatory guidelines to tackle the “worrying” level of household debt, one of the highest among major Asian economies.

(Bloomberg) — Thailand’s central bank is preparing a series of regulatory guidelines to tackle the “worrying” level of household debt, one of the highest among major Asian economies.

The Bank of Thailand’s new guidelines will outline sustainable ways to resolve the household debt, according to Assistant Director Suwannee Jatsadasak. The central bank aims to gradually bring down indebtedness of the households to 80% of the nation’s gross domestic product from about 90.6% currently, she said.

The new BOT pathway to solve the household debt will include responsible lending, risk-based loan pricing and macro-prudential measures for lenders, Suwannee said at a briefing in Bangkok on Monday. The monetary authority expects to unveil the guidelines for feedback from stakeholders later this month, she said.

Thai authorities have grappled with the debt problem with about a third of the people in Southeast Asia’s second-largest economy owing a total of 15.96 trillion baht ($454 billion) to formal lenders and an estimated 1 trillion baht borrowed from loan sharks. The central bank is accelerating efforts to rein in the debt as interest rates rise to multi-year highs, threatening more defaults and higher non-performing loans at banks.

“Our household debt-to-GDP ratio is high compared to other countries and it has been our concern for quite a long time,” Suwanee said. “What we are concerned the most about is the high proportion of non- productive loans such as personal loans.”

Read More: Why Thais Have Such a Debt Problem and Why It’s Risky: QuickTake

Some two-thirds of the loans were considered non-productive, like those made to pay for travel, luxury items, electronics and other consumer goods, according to the National Credit Bureau. Late payments were rising for car and housing loans, as many borrowers apparently used up their savings during the pandemic, according to data from the bureau.

“Non-performing loans may rise going forward from those sensitive groups,” Suwannee said. “But we don’t expect to have NPL cliff, as the level is still manageable.”

Non-performing loans at Thailand’s commercial banks dropped to 2.68% in the first quarter from 2.73% at the end of 2022 as domestic lenders accelerated debt sales, restructuring and write-offs, according to BOT data. But loan growth eased to 0.5% in the January-March quarter from 2.1% in the previous quarter, the central bank said in May. 

Here are the main highlights of BOT’s lending guidelines:

  • Responsible lending to ensure banks offer services responsibly and fairly by sharing adequate information and refraining from excessively advertising
  • Risk-based pricing to prod banks to charge interest based on borrowers’ risk profile though this doesn’t mean doing away with lending cap
  • Macroprudential measure to ensure assessment of debt-service ratio before granting new loans

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