BoT adds guidelines for debt consolidation

BoT adds guidelines for debt consolidation

Move aims to reduce burden of interest

The Bank of Thailand (BoT) plans to implement additional guidelines for the debt consolidation programme to help retail loan borrowers to reduce interest rate burdens.

The BoT has prepared additional debt aid options to help the borrowers to ease their debt burden amid the latest prolonged Covid-19 outbreak.

The central bank is scheduled to implement the new guidelines on the current retail loan consolidation programme in October, said Chayawadee Chai-Anant, senior director of the economic and policy department at the BoT.

The central bank is offering debt consolidation as an option under its debt restructuring scheme for retail loans.

Under the current debt consolidation concept, retail loan borrowers can pool all consumer loan debts from many financial institutions in one bank for refinancing and can convert this debt by changing short-term unsecured loans to long-term loans in order to receive lower interest rates.

As part of the additional guidelines of the debt consolidation programme, the central bank will set ceiling rates of this pooled debt, Ms Chayawadee added.

For instance, the ceiling rate charge for debt consolidation between personal loans and mortgage loans should not be above 10% per year.

Presently, mortgage loan interest rates are based on the minimum retail rate (MRR) or minimum lending rate (MLR) of home loans of around 6-8% per year, while the maximum interest rate for personal loans is at 25% per year.

In addition, the central bank will require the lenders to waive pre-payment fees for the debt consolidation.

"Debt consolidation will encourage market competition mechanisms and it will benefit borrowers, especially in terms of interest rate reduction. Hence, it will help borrowers more on debt burden relief," she said.

The central bank has relaxed, adjusted and implemented additional debt relief measures for both the existing debt restructuring and new loan offerings.

These will help borrowers, especially individuals and small and medium-sized enterprises, ease their debt burden.

Given the prolonged outbreak, the central bank has focused on debt restructuring for the longer term rather than on a short-term debt moratorium.

Borrowers participating in debt relief measures were 5.12 million accounts, accounting for total outstanding loans of 3.35 trillion baht.

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