Credit card issuers have proposed the Bank of Thailand lower the credit line of cardholders joining the central bank's new refinancing scheme and waive loan-loss provision requirements for participants in return for an interest rate cut to 7-12%, says a source in banking circles.
Those who want to take part in the scheme must agree to cut their credit line and shun accumulating new debt, the source said, adding that the annual rate reduction to 7-12% would strengthen debt-servicing ability and help debtors pay off their debt faster.
For instance, a credit card holder with a credit line of 100,000 baht could be lowered to 20,000 baht.
The central bank has set a maximum interest rate of 20% for credit cards.
The bank is talking with financial institutions to extend the Debt Clinic scheme to those who pay only a minimum amount due on credit cards at 10% as a means to help them exit from the debt trap and reduce swelling household debt.
The Debt Clinic is a scheme that pools unsecured bad loans owed to multiple creditors and turns them into performing loans by offering them to pay interest rates of 4-7% for up to 10 years. Participants are prohibited from running up new debt for five years and must take courses on financial literacy and good financial management.
Thailand has high household leverage. Household debt in the second quarter amounted to 13.1 trillion baht, up 5.8% from a year earlier. The debt accounted for 78.7% of GDP.
Another source in banking circles said the central bank needs to apply the Debt Clinic concept to pool all credit card lenders to make refinancing efficient.
Thakorn Piyapan, head of Bank of Ayudhya's unsecured loan arm, Krungsri Consumer, said the lender is still waiting for the central bank's hearing about the issue and clearer conditions for the debt refinancing project.
The ability to prevent those who join the scheme from running up new debt is his main concern. Mr Thakorn is also chairman of the credit card club under the Thai Bankers' Association.
"Debt refinancing is a normal practice for financial institutions, but we cannot control borrowers from accumulating new debt," he said.
Chantavarn Sucharitakul, assistant governor for corporate strategy and relations at the Bank of Thailand, said the central bank is in talks on initial principles of the refinancing scheme for those who service only the minimum amount due on credit cards, but she warned it could take a while to see clearer practices take shape.