The Bank of Thailand (BoT) is allowing banks to continue providing credit lines to retail borrowers participating in debt restructuring programmes to help support their liquidity amid a slower income recovery.
According to Somchai Lertlarpwasin, assistant governor for the financial institutions policy group at the regulator, the bank encourages individual borrowers struggling with debt repayment or who are unable to service their existing debt to apply for debt restructuring programmes.
Financial institutions are permitted to maintain existing credit lines for these borrowers to support their regular expenses during tight liquidity, particularly for vulnerable segments, he said.
On Friday, the central bank announced a relaxation of individual loan regulations, including credit cards, personal loans, and mortgages, to improve the debt repayment capacity of vulnerable borrowers. The regulator extended the minimum monthly payment rate on credit cards at 8% for another year until the end of 2025, up from the previous end date of 2024. Additionally, the central bank allows card issuers to maintain the credit lines of cardholders.
The central bank also encourages personal loan borrowers, classified as persistent debt (PD) under its definition to enter the PD solution programme. Furthermore, banks are now allowed to retain the remaining credit lines of borrowers, reversing a previous requirement to close loan accounts for those participating in the PD programme.
Additionally, the Bank of Thailand permits financial institutions to offer mortgage loans with a loan-to-value (LTV) ratio higher than 100% through debt consolidation programmes, though the LTV regulation remains unchanged at 90-100%.
Liquidity 'crucial'
Mr Somchai said that the central bank has had multiple discussions with financial institutions to find solutions to ease borrowers' financial burdens and improve their debt repayment abilities.
Regarding the central bank’s debt solution measures and the relaxation of retail loan rules, the regulator permits banks to sustain borrowers' liquidity in accordance with regulations or while they are applying for debt restructuring programmes.
“We found that liquidity is crucial for vulnerable borrowers. Increased debt payments would put strain on their liquidity while their income has not yet improved,” he said.
The Bank of Thailand introduced the PD solution programme in April this year, and there are around 500,000 personal loan accounts qualifying for the debt solution programme. However, only about 1-2% of these accounts have applied for the PD programme, partly due to the loan account closure regulation.
Mr Somchai said the central bank wants to strike a balance between addressing household debt issues and alleviating borrowers' financial burdens. Through the relaxed retail loan rules, the central bank hopes to encourage borrowers with repayment capacity to service their debts and receive rewards.
Borrowers who are unable to meet their debt obligations under the relaxed regulations can enrol in debt restructuring programmes to alleviate their financial burden and break free from the debt cycle. Household debt remains a structural issue impacting Thailand's economic growth, with the debt-to-GDP ratio reaching 90.8% in the first quarter of this year.