A ceiling rate cut for consumer loans would not be a holistic solution to help ease the debt burden of individual borrowers, says an executive of the Bank of Thailand.
The central bank has been studying cutting the ceiling rate for some consumer loan products to lower the financial cost for retail borrowers. The bank needs to consider the pros and cons of the option, said deputy governor for financial institutions stability Ronadol Numnonda.
Even though a ceiling rate cut would reduce borrowers' costs, it might push some of them out of the financial system, he said. Lower interest rates will draw in more loan applicants, and some might be rejected if they do not have good repayment capacity. This could lead them to look for a loan shark, which often have unreasonable rates, said Mr Ronadol.
"A ceiling rate cut is not the solution to ease the financial burden of borrowers comprehensively. The central bank needs to consider whole instruments, including an interest rate that helps borrowers hit by the outbreak," he said.
Recently the prime minister asked the central bank to cut the ceiling rate of consumer loan products to relieve the debt burden of retail borrowers because of hardships caused by the pandemic.
Mr Ronadol said the central bank allows financial institutions to offer a two-month debt suspension, covering both principal and interest payments, to individual and small and medium-sized enterprises (SMEs) that have been affected by the government's latest lockdown measures to contain the outbreak.
The two-month debt moratorium is a collaboration between the central bank, Thai Bankers' Association, the Government Financial Institutions Association, the Association of International Banks, and non-bank lenders. The measure is open to borrowers facing both direct and indirect impacts from the lockdown measures.
Directly affected borrowers are defined as unemployed workers and owners of closed businesses, while indirectly impacted borrowers are those whose income has declined because of the government measures.
Affected borrowers should verify the impact with financial institutions to ask for the two-month debt holiday.
The initial debt suspension period is two months, but the central bank will monitor the situation, including infection containment, economic activity, the income of affected people and additional government measures such as subsidies, before making any decision to revise the debt holiday, said Mr Ronadol.
The central bank's third phase debt restructuring programme for both retail and SME borrowers should help Covid-hit borrowers, he said.
The central bank said it is open to financial institutions offering assistance to borrowers via several methods, in line with impact and debt repayment ability, judged on a case-by-case basis.
Several banks are implementing a debt holiday for two months, in line with the central bank's measure.
Some banks launched other options for debt restructuring to help borrowers affected by containment measures, said Mr Ronadol.
He said the central bank's soft loan scheme for SMEs has been progressing. The total budget for the debt aid programme is 250 billion baht, of which 100 billion is expected to support SMEs' liquidity for the first six months.
The remaining 150 billion baht is allocated to support SME business recovery in the next phase.