The Bank of Thailand plans to implement new lending guidelines to prevent over-indebtedness of household borrowers, says Siritida Panomwon Na Ayudhya, assistant governor of payment systems policy and financial consumer protection group.
During a press conference and panel discussion programme entitled "Debt Clinic Relief" organised by Sukhumvit Asset Management Co (SAM) on Monday, Ms Siritida said rising bad debt among the Gen X and Gen Y age groups stemmed from many reasons. Firstly, it was the result of the economic crisis that occurred during the pandemic, which led to high unemployment and business failures. Secondly, it was due to a lack of financial discipline or overspending. Finally, it was due to excessive advertising by lenders.
"The Bank of Thailand is keeping an eye on this matter and plans to implement responsible lending guidelines to improve loan quality in the Thai financial system," she said.
"In addition, the Bank of Thailand is preparing a draft royal decree to supervise the leasing and hire-purchase business to tackle informal debt issues, with a focus on providing fair customer service such as clearer disclosure of information to customers, fees related to hire purchase contracts, and asset audits and liabilities of business operators."
Over the past 12 years, the country's household debt increased from 60% in 2010 to 90% in 2021, mainly attributed to the impact of the pandemic.
Such debt may weaken the overall financial and economic system and lead to over-indebtedness and loan defaults, especially among low-income earners.
Regarding the central bank's recent interest rate hikes, Ms Siritida said it would not affect the debtors' repayments as it was made on a step-by-step or gradual basis. In addition, if any debtor enters SAM's debt relief programme, the interest rate will be very lenient, which aims to support borrowers' ability to repay their debts.
Tharatporn Techakitkachorn, president of SAM, said that since 2017 SAM has been assigned by the central bank to oversee the "Debt Clinic Project by SAM", with 300,000 customers who have participated in the project. However, only 40,000 customers met the debt restructuring criteria of the project, accounting for 116,947 loan accounts and representing debt obligations under loan agreements of 7.92 billion baht. Of these, only 1,312 borrowers completed their debt refinancing process.
The central bank wants SAM to increase the number of participants in the debt clinic project by 50,000 during the rest of this year.
Mr Tharatporn said almost 100% of those in the debt clinic project are in the Gen X and Gen Y age groups, as the economic crisis affected their ability to repay their debt. He believes there are many Gen X and Gen Y debtors who have debt repayment problems but are not yet ready to join SAM's debt relief clinic.
There are four main criteria for debtors to join the debt relief clinic programme: unsecured personal loans, include from banks and non-banks; their total debt burden (inclusive of all financial institutions) does not exceed 2 million baht; the age of the borrower, when combined with the duration of debt repayment, should not exceed 70 years; and a debt default status of more than 120 days.
Any qualified borrower will be subjected to the debt restructuring process with a repayment period of up to 10 years and an interest rate of 3-5% per annum.
The household debt situation at the end of the fourth quarter of 2022 amounted to 15.09 trillion baht, or 86.9% of GDP, down from the previous quarter when it was 87% of GDP, due to economic expansion.
SAM was established in 2000 following a cabinet resolution shortly after the regional financial crisis of the late 1990s, which resulted in high amounts of bad debts or non-performing loans (NPLs) in the country's financial system.
It is 100% owned by the Financial Institution Development Fund.
SAM took over and managed the NPLs from Krungthai Bank.