The Bank of Thailand has clarified it does not stop financial institutions from launching 0%-interest instalment campaigns for goods and services but would like to see “responsible lending”.
Earlier, governor Veerathai Santipraphob singled out such campaigns as a key driver of high household debt.
Credit-card issuing banks have long joined hands with vendors to promote the use of their cards by allowing buyers to pay for big-ticket items and services in 3-10 monthly instalments free of interest.
The campaigns have been highly popular and proved effective in speeding up people’s buying decisions for obvious reasons.
“It’s not our intention to interfere with financial institution’s promotional campaigns. We simply want to see responsible lending,” Mr Veerathai said.
“We’d like to ask financial institutions whether the ways they conduct business have created undesirable effects on society.
He added the 0% campaigns were not wrong so long as they applied only to necessities such as medical bills or products people have to use at work.
“Even so, we see some financial institutions trying to win an edge in the first-jobbers segment by offering credit for unnecessary spending such as overseas trips. These may exacerbate the high household debt problem in the long term and eventually backfire on the financial institutions themselves.”
The central bank governor explained that people, seeing 0% campaigns are available, tend to think [the interest] is free. “They don’t realise they'll have to pay a punitive fine when interest rates are on the rise [and they can’t pay instalments],” he said.
The business of luring people into a trap in anticipation of fees or high penalty was among the issues the central bank had discussed with financial institutions since they might create unintended consequences, he added.
Mr Veerathai added it was up to each institution to come up with measures to ensure responsible lending.
“Financial institutions have jointly signed a memorandum. It’s not that we ban them from launching 0% campaigns.”
According to Bank of Thailand data in early August, household debt to gross domestic product jumped more than 25 percentage points in 10 years — from 53.5% in 2009 to 78.6% in 2018, the second-highest in Asia after South Korea.