The Bank of Thailand is allowing unsecured loan borrowers to use collateral stemming from mortgage loans for debt restructuring through debt consolidation, with lower interest rates charged.
The central bank has introduced an optional debt relief measure for consumer finance products as a debt consolidation method.
Borrowers who have good debt-servicing ability for housing loans can convert unsecured loans to secured loans by using houses as collateral to qualify for the debt consolidation programme, said Thanyanit Niyomkarn, assistant governor for supervision group 2.
The manoeuvre must be done through the same financial institution or finance company.
By converting unsecured loans to secured loans under the debt consolidation concept, the maximum interest rate is charged at a minimum retail rate (MRR) quoted at 5.75-8.80%.
Unsecured loan products under debt consolidation cover credit cards, personal loans and vehicle title loans.
Under the central bank's debt relief measures for the second phase, the ceiling interest rate charged is 16% for credit cards, 25% for personal loans and 24% vehicle title loans.
Housing loans entering the debt consolidation programme must not be classified as non-performing loans (NPLs), while unsecured loans can be classified as either NPLs or non-NPLs.
The debt consolidation programme started on Sept 1, 2020 and ends on Dec 31, 2021.
Mrs Thanyanit said outstanding mortgage loans that qualify for debt consolidation total about 20 billion baht from 23 financial institutions, comprising both commercial banks and specialised financial institutions.
The qualified mortgage loans of 20 billion baht are not a large amount, given that debt consolidation is an option for debt restructuring, she said.
There are several debt relief and debt restructuring measures offered for both individual and commercial loan borrowers in line with the debt repayment capability of each segment. This includes the Debt Clinic, which is the central bank's debt restructuring scheme for unsecured bad debt.
"In preventing moral hazard for debt, borrowers need to receive an approval from banks to enter the debt consolidation programme," Mrs Thanyanit said. "Banks know their customers well both in terms of debt-servicing ability and willingness to pay."
The central bank will monitor the programme's progress first before considering expanding into a cross-bank concept. Cross-bank debt consolidation would be harder to bring about.
Apart from easing the financial burdens of borrowers, the central bank's debt relief measures will help contain NPLs in the overall banking sector.
NPLs of consumer finance are edging up on the back of an economic downturn arising from the pandemic.
Gross outstanding NPLs totalled 509.0 billion baht, equal to 3.09% of total loans, in the second quarter, up from 3.04% in the previous quarter.