BoT preps measures for household debt

BoT preps measures for household debt

The atmosphere at Money Expo 2022, which kicked off on Thursday and runs until Sunday at Impact Muang Thong Thani. The financial exhibition offers attractive deals, including zero-interest loan rates. (Photo: Nutthawat Wicheanbut)

The Bank of Thailand plans to implement new measures to ease household debt, focusing on lower-income borrowers.

The central bank, in collaboration with the government and the private sector, has been considering household debt solutions, particularly to assist vulnerable borrowers classified as lower-income earners.

Helping this group of borrowers to increase its income is a major goal to strengthen their capability for debt repayment, said central bank deputy governor Ronadol Numnonda.

The low income and high debt burden for vulnerable groups is a key reason for the county’s swelling household debt.

The central bank plans to set guidelines to mitigate the problem, while regulatory agencies, financial institutions and related stakeholders will cooperate to provide financial literacy about borrowing, finance and debt management, he said.

The Bank of Thailand has implemented several measures to help borrowers during the pandemic with long-term debt restructuring and continues to monitor the situation.

Mr Ronadol said although the banking industry’s non-performing loans have been rising amid a fragile economic rebound from the Covid-19 impact, bad debt has not significantly increased.

New loan approval in the banking sector has been increasing in line with stronger demand, supported by improving economic activity after the country’s reopening.

He said the central bank would concentrate on responsible lending in the banking sector as a way to contain the household debt problem.

The Bank of Thailand will not set a specific debt-to-service ratio (DSR) governing financial institutions, said Mr Ronadol. The central bank only outlined the DSR definition as a guideline for financial institutions.

Under the DSR guideline, in addition to borrowers’ ability to repay debt, financial institutions should also consider the borrowers’ residual income to sustain their livelihood after the debt payment.

Data sharing from all related parties is one method to help deal with the country’s household debt, said the central bank. Adequate information should help both regulators and financial institutions to stipulate targeted measures helping borrowers better manage debt, he said.

Though the National Credit Bureau gathers credit records for the country, the data is not comprehensive, said Mr Ronadol. For instance, the data does not cover cooperatives’ loans and there is no data centre collecting loan shark information, which is at the core of the nation’s household debt problem, he said.

Mr Ronadol said some financial institutions are discussing with the central bank setting up joint venture asset management companies (JV-AMC) to manage distressed debt in the banking sector. Some may apply for JV-AMC licences this year, he said.