BoT bans fees for consumer loans

BoT bans fees for consumer loans

Move is to encourage responsible lending

The Thai central bank wants to curb household debt. (Photo:Reuters)
The Thai central bank wants to curb household debt. (Photo:Reuters)

The Bank of Thailand is prohibiting fees for debt prepayment and debt restructuring for all consumer loan products under the new responsible lending (RL) regulation.

The regulation is effective from Jan 1, 2024.

The RL regulation applies to all types of financial institutions, including banks, non-banks, asset management companies and specialised financial institutions.

However, the pre-payment fee prohibition excludes mortgage loan refinancing for the first three years of the loan term.

The new regulation is applicable to all types of consumer loan products, said Suwannee Jatsadasak, the central bank's assistant governor for the supervision group.

She said the Bank of Thailand continues to maintain fair prices for both service fees and interest rates that financial institutions charge to consumers and borrowers.

Regarding the wider net interest margin between deposit and loan interest rates in the banking sector, the central bank plans to hold further discussions with banks, Ms Suwannee said.

The regulator is also monitoring the stability of the financial system, she said.

As part of the household debt resolution plan, the central bank plans to assist debtors with revolving personal loans that have low income and persistent debt (PD), helping them to fully repay their loans within five years at an interest rate not exceeding 15% per year. The current ceiling rate of personal loan products is 25%.

People discuss financial deals and loans at an SME D Bank booth at a Money Expo.

The central bank is scheduled to enforce the new PD measures from April 1, 2024, to ensure creditors have sufficient time to adjust their operations and gradually apply them based on debtors' income level.

In addition, the Bank of Thailand plans to prohibit financial institutions from charging compound interest for personal overdraft loans, effective from July this year.

The RL regulation aims to curb the country's household debt over the long term.

Under the measures, Thailand's household debt dropped to 90.9% of GDP in the third quarter of 2023, down from 91.4% at the end of 2022.

The lower debt-to-GDP ratio is supported by economic growth and lower debt creation, said the central bank.

With the RL measure, the regulator wants to improve loan quality in the household sector, said Ms Suwannee. Higher loan quality would help accelerate long-term economic growth and gradually reduce the debt-to-GDP ratio.

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