Individual bad debtors, who are in total saddled with more than 100 billion baht in unsecured loans, are set to take part in Debt Clinic, a centre to pool unsecured soured loans of 16 local and foreign commercial banks with the aim of turning them into performing assets.
Debt Clinic, which will be managed by the Financial Institutions Development Fund's wholly-owned subsidiary Sukhumvit Asset Management (SAM), will be rolled out as a pilot project in June to cultivate financial discipline among borrowers.
Bank of Thailand governor Veerathai Santiprabhob referred to National Credit Bureau (NCB) findings that about 500,000 people are qualified to participate in the programme.
"The clinic is aimed at helping those who have debts with multiple creditors to pay off their debt, while at the same time strengthening good financial discipline to prevent social and economic issues that could arise," Mr Veerathai said.
Pooling the bad personal and credit card loans at SAM will allow commercial lenders to better address distressed loans through access to more comprehensive information on troubled debtors with multiple creditors.
The 16 banks are Bangkok Bank, Krungthai Bank, Siam Commercial Bank, Kasikornbank, Bank of Ayudhya, Kiatnakin Bank, Citibank, CIMB Thai Bank, TMB Bank, Tisco Bank, Thai Credit Retail Bank, Thanachart Bank, UOB Thai, Land and Houses Bank, Bank of China and Industrial and Commercial Bank of China (Thai).
The Debt Clinic targets regular income earners who failed to repay credit and cash cards, and personal loans with at least two banks for more than three months before May 1. The participants' principal plus unpaid interest must be within 2 million baht each.
After entering the programme, the participants will repay the debt only through SAM and their restructured debt will carry interest rates in a range of 4-7% for up to 10 years, depending on the monthly income of debtors.
The rate, which is far below the central bank's ceiling interest rate for credit cards of 20% and for personal loans of 28%, will ease participants' financial burden.
SAM will manage the bad loans, which will turn into performing loans once the first repayment is made.
The Debt Clinic will open for registration on June 1.
Mr Veerathai said that the Debt Clinic is a response to the central bank policy to lower the country's household debt-to-GDP ratio from around 80% at present. He did not provide specifics on what percentage of the debt will be reduced by the clinic.
"Even though the household debt-to-GDP has declined slightly, it remains high at around 80% of GDP," he said.
The household debt-to-GDP ratio was recorded at 79.9% at the end of last year, down slightly from 81.2% in the end of 2015.
He said that 20% of the 80% household debt ratio was used to fund businesses, whereas the remainder was for consumption and high debt proportion for consumption triggers concerns over the stability of the economy in the long term.
Mr Veerathai said that for the next phase, the programme could be expanded to include other types of loans and borrowers.
The central bank is also in the process of amending the Asset Management Corporation law to allow debts of the non-banks to also be managed by SAM.
Non-bank consumer loan operators, including Krungsri Consumer and Krungthai Card, form a big portion of loans.
He said the amended law is currently being reviewed by the Council of State before being forwarded to the National Legislative Assembly and is expected to be effective within this year.
Bad consumer loans rose from 2.71% at the end of last year to 2.82% of consumer loans as of March 31, while bad loans from credit cards rose from 3.74% to 4.09% of credit card loans, according to the central bank's data.
The single standard of loan collection and management under SAM will help boost debtors' confidence in joining the project, said SAM chairman Pongpen Ruengvirayudh.
SAM has set up a new business unit working for the task and will outsource its services if the project receives a good response.
