This is the second such program after the first in 2017 which saw 37,000 borrowers participate. The results were mixed. This new expanded program includes 19 non bank financial institutions and is targeting 490,000 borrowers holding ฿49 billion in debt. Household debt in Thailand rose from ฿4 trillion in 2007 to ฿12.5 trillion today. The figures show that despite economic growth, private consumption has fallen as a percentage of GDP from 53% in 2009 to 47% today. There are many who feel that the economic figures themselves mask a growing problem that is taking a severe human toll as well as holding back the Thai economy

Thailand’s central bank supremo, Veerathai Santiprabhob, this week highlighted again the unsustainable nature of the kingdom’s high level of household debt. The Bank of Thailand governor revealed details of the second phase of an innovative program to assist chronic borrowers of up to ฿49 billion who are in arrears or in default with 19 non bank financial institutions.The second phase of the ‘Debt Clinic’ program is set to begin this month. The move comes after the bank on April 1st introduced lending curbs for motor and house loans being advanced by Thailand’s retail banking sector. The Bank of Thailand boss urged lenders to look more to the repayment capacity of Thai borrowers in the future as opposed to the ability to provide security or collateral in making loan decisions.

The Governor of the Bank of Thailand, on Tuesday, announced that the bank had signed a memorandum with Sukhumvit Asset Management to administer the second phase of the ‘Debt Clinic’ program aimed to 490,000 borrowers in default or in arrears with more than one non bank financial institution in Thailand. It is an expanded version of a 2017 scheme for which 37,000 borrowers signed up. Veerathai Santiprabhob highlighted that the current 79% ratio between household debt in Thailand and the country’s GDP was unsustainable and out of kilter with economies with a similar income level. Household debt in absolute terms has zoomed up since 2007 in Thailand and private consumption as a percentage of GDP has declined. The problem of household debt is a dead weight on the Thai economy particularly in challenging times such as this year when world economic growth is slowing down.

Thailand’s central bank governor has again reiterated the importance of curbing the country’s household debt problem. Veerathai Santiprabhob, the Governor of the Bank of Thailand, which on April 1st initiated lending curbs on household and car financing, called on Thailand’s bankers to look more to the repayment capacity of borrowers and debt sustainability instead of collateral or security when making loan decisions.

Growth in household debt and a decline in the rate of private consumption in Thailand

Household debt began to rise again last year in the kingdom and by the end of the period stood at nearly 79% of Thailand’s GDP. At a time when the Thai economy is experiencing external pressures with lower than projected GDP growth, this problem has just become even more pressing. The level of personal and household debt in Thailand has risen markedly since 2007. In that year, household debt in Thailand was ฿4 trillion. It has climbed to ฿12.5 trillion in 2019.  Much of this can be accounted for by new property loans and it must also be pointed out that officially, household debt was brought down from a previous high in 2015 before beginning to rise again in 2018. Even in the past few years, which have seen economic growth, figures show that disposable income per household has declined. Private consumption in Thailand as a percentage of GDP has declined nearly consistently over the last ten years from 53% in 2009 to 47% now.

Bank of Thailand says Thailand’s household debt ratio to GDP must be tackled

The Bank of Thailand boss has pointed out that Thailand’s household debt to GDP ratio compared to other, similar sized economies is not sustainable. It is already preventing the bank from lowering interest rates but the negative effect on domestic consumption is notable.

Human suffering toll of debt burden is not measured by economists but plays out daily in the Thai news media as stressed borrowers lash out

The human cost however, although economists do not measure this, is palpable. Many Thai people are being forced into the hands of loans sharks charging extortionate rates while financial pressures on families with a limited income take a huge toll on Thai people whose sense of honor is highly pronounced. The savage killing of a mother and two children at the hands of the husband and father of a family shocked many in Thailand last week. The family reportedly had made a suicide pact due to the burden of daily debt repayments to a debt collector. Similar instances of financial pressure causing mental health issues and despair play out daily on the Thai news media. Before Christmas this year, a Thai army officer robbed a bank in order to repay outstanding debt commitments.

Thai Central Bank takes positive action with innovative ‘Debt Clinic’ scheme designed to assist chronic borrowers with problems

On Tuesday, the Thai Central Bank signed a memorandum of understanding with an asset management company in Bangkok and 19 non bank financial institutions in Thailand as it embarked on the second phase of its ‘Debt Clinic’ initiative to assist chronic borrowers who have fallen into arrears with unsecured debt. The novel and innovative scheme allows non bank lenders to pool loans and offer non performing debtors a way out of debt situations that may otherwise have more negative consequences.

Scheme targets ฿49 billion in loans to more than one institution owed by 490,000 people

Sukhumvit Asset Management will work with the participating banks and institutions to assist borrowers to manage and later to exit from commitments to the lending institutions. The scheme, as constituted, now extends to 490,000 borrowers with unsecured loans to more than one financial institutions. The amount of outstanding loans targeted by the scheme stands at ฿49 billion.

The firms participating in the project are lending institutions and companies that are not banks. The companies includes are Citicorp Leasing Thailand, General Card Services, Krungsri Credit Card, Krungthai Card, Ayudhya Capital Services, Easy Buy, Aeon and Promise Thailand.

Central Bank makes it easier for borrowers who can apply after May 15th to participate

The Bank of Thailand has also confirmed that it has also tweaked the criteria to make the scheme more accessible to borrowers with debts in arrears before January 1st this year. A significant poll in 2017 found that up to 60% of Thai urban households have, at one time or another, defaulted on a loan commitment. Debtors to the financial institutions involved in the ‘Debt Clinic’ scheme can apply after May 15th for participation in the scheme. The Thai Central Bank Governor, Veerathai Santiprabhob, points out that a very significant proportion of unsecured loans that are non performing are linked with the firms now participating in the plan.

First stage of the debt clinic scheme began in 2017 – just over 4% were able to refinance

The first stage of the ‘Debt Clinic’ scheme commenced on June 1st 2017. It saw 37,000 debtors taken on by the initiative. They received financial advice and support in dealing with unsecured loan commitments. The results were somewhat disappointing. Of this number, 1,500 successfully refinanced their unsecured debt while a smaller number of only 16 manage to pay off the debt and exit the process. In spite of this, the scheme itself offers the benefit of moral support and guidance to struggling debtors which can make a difference.

Scheme on offer to Thai borrowers provides for lower interest rates and extended periods

One of the key advantages for borrowers is a lower interest rate set at 4 to 7% per year. This rate is considerably lower than the 20% that many of the borrowers are paying for what are unsecured, consumer type loans. The initiative allows borrowers, even those that are in breach of commitments and considered ‘bad debtors’ to avail of lower rates and to extend the repayment period up to 10 years.

Under the provisions of the ‘Debt Clinic’ scheme, debts from various organisations are brought together and managed by Sukhumvit Asset Management. Debts with a combined value of ฿100,000 for instance, can be paid back over an extended period at ฿1,200 a month.

Scheme provides intelligence and guidance for Thailand’s financial leaders on a national priority

The scheme also provides for more comprehensive information on the debtors involved.  This helps for future guidance to financial institutions and indeed to government and regulatory agencies. Recent evidence shows that a certain section of the Thai public are more likely to have multiple accounts opened across all the lending institutions. A key goal of any reform of household debt must be to limit loan facilities to borrowers with real repayment capacity. This raises the question of whether the rise in household debt may also be a symptom of structural problems within the Thai economy since 2007.

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