Central bank tackling rise in unsecured loans

Central bank tackling rise in unsecured loans

The Bank of Thailand plans to ask both banks and non-banks to cease encouraging unnecessary borrowing of unsecured loans early next year as it wants to see the ratio of household debt to be at a level not exceeding 80% of GDP.

The central bank does not want to see the household debt-to-GDP ratio exceed 80% in accordance with international standards and the standard of the Bank for International Settlements.

However, it will take more time for the gradual decline of the household debt ratio and balance with gradual recovery of the economy, the central bank's governor Sethaput Suthiwartnarueput said at a press briefing last weekend.

"If we conduct measures that are too tight, it could impact the loan accessibility of the household sector and disrupt the smooth takeoff of the Thai economy," Mr Sethaput said.

During the Covid-19 pandemic, household debt ratio peaked at around 90% of GDP before ebbing to around 88% in the second quarter this year, due to growing GDP.

However, the existing level at around 88% is still too high. Given a sustainable debt level, the household debt ratio should be no more than 80%, he added.

The central bank has continued launching measures to solve the existing bad debt of the household sector by focusing on unsecured loan products, covering credit card and personal loans.

The bank's deputy governor Ronadol Numnonda said secured loans, including mortgage loans, auto loans and loans for entrepreneurs, represent a large portion at 65% of total retail loans outstanding of the banking industry, while unsecured loans represent 35%.

The household debt problem mainly stems from non-performing unsecured loans of low-income borrowers, who are in the vulnerable segment and feel the impact of the pandemic.

After focusing on solving existing bad loans of the household sector, in the next step the central bank will concentrate on the higher quality of unsecured loan products to curb household debt, he added.

The regulator plans to circulate a letter to both banks and non-banks in the first quarter next year to ask them for collaboration to stop heavy marketing campaigns of unsecured loan products.

The central bank will require them to stop campaigns which encourage unnecessary borrowing of unsecured loans, such as loan campaigns offering instalment payments of 0%, Mr Ronadol said.

In the next step, the central bank will consider reviewing criteria of unsecured loan applications, including the minimum income of borrowers, he said.

Presently the Bank of Thailand requires minimum income of 15,000 baht per month for credit card applications. The central bank does not stipulate the minimum income of personal loan applicants but allows financial institutions to set the amount, in line with their customer market segments.

Tackling household debt is a key task among the central bank's five priorities in 2023. The others are taking care of the economy for a smooth take-off, monetary policy normalisation, promoting digital infrastructure, promoting green economy and conducting human resource development.

The central bank's assistant governor for monetary policy group, Piti Disyatat, said the bank expects its monetary policy would be gradually normalised to a regular level at the end of 2023 when the inflation rate reaches the target range of 1-3%.

In a related development, Siam Commercial Bank yesterday announced increasing both the minimum lending rate (MLR) and the minimum overdraft rate (MOR) by 0.25% to 5.50% and 6.09%, respectively. It will also raise fixed-deposit rates by a maximum 0.50%. All these rate increases take effect today.

Krungthai Bank also announced increasing MLR and MOR by 0.25% to 5.5% and 6.07%, respectively. The bank will also increase fixed-deposit rates by a range of 0.15-0.825%, effective today.

Last week three major banks -- Bangkok Bank (BBL), Kasikornbank (KBank) and Bank of Ayudhya (Krungsri) under the marketing name Krungsri -- announced raising the fixed deposit and loan rates after the central bank last Wednesday hiked its policy rate by 0.25% to the current 1%.

BBL's rate hike took effect on Sept 29, KBank's yesterday and Krungsri's today.


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