BoT holds off on DSR standard plan

BoT holds off on DSR standard plan

Vulnerable exposed amid poor economy

An advertisement promotes personal loans at Money Expo 2019. The central bank is delaying its standardised debt-service ratio calculation as it seeks to help low-income earners access loans. (Photo by Pornprom Satrabhaya)
An advertisement promotes personal loans at Money Expo 2019. The central bank is delaying its standardised debt-service ratio calculation as it seeks to help low-income earners access loans. (Photo by Pornprom Satrabhaya)

The Bank of Thailand has delayed implementing a standardised debt-service ratio (DSR) calculation from the final quarter of this year, hoping to help low-income earners access loans from financial institutions amid the sluggish economy.

The Bank of Thailand and financial institutions have jointly standardised the DSR calculation in terms of retail borrowers' debt liabilities and income for a while. According to the original plan, financial institutions were expected to begin reporting DSR data to the central bank by the October-to-December quarter.

The standardised DSR computation will be applicable to all types of consumer loans with the exception of mortgages, which are regulated by the loan-to-value requirement, effective since April 1 this year.

Financial institutions have different DSR calculations. This led to an overextension of consumer loans to some borrowers and swelling household debt.

The central bank has voiced concerns that high household leverage is a risk to the tepid economy. The minutes of the Monetary Policy Committee's monthly meeting flagged concerns about high and rising household leverage as a result of loan expansion by commercial banks and non-bank financial institutions.

Ronadol Numnonda, deputy governor for financial institutions stability at the Bank of Thailand, said the central bank will keep a close eye on household debt and may implement appropriate supervisory criteria if the situation becomes more fragile.

Finance Minister Uttama Savanayana said the central bank could consider delaying the DSR implementation amid the current circumstances.

He said the postponement is the central bank's own decision and not a directive from the Finance Ministry.

A source in the banking industry who requested anonymity said the central bank's statement implied that a standardised DSR calculation, which undergoes stress testing in financial institutions, will be put off.

The stress test aims to evaluate the impact from the standardised calculation, including the approval and rejection rates of retail loan applications, especially for vulnerable groups defined by the central bank as those earning monthly income of less than 30,000 baht.

The delay in implementing the standardised DSR calculation is seen as lending support to the government's economic stimulus package targeted at low-income earners, the source said.

The central bank recently asked financial institutions to apply its retail lending guidance that caps DSR for vulnerable groups at 70%.

Thailand is among the countries with the highest household debt loads in Asia. The ratio climbed to 78.7% of the country's GDP at the end of March from 78.3% at the end of last year and 53.5% in early 2009.


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