Central bank tackles rise in unsecured lending

The Bank of Thailand plans to ask banks and non-banks to stop encouraging unnecessary borrowing of unsecured loans early next year, as it wants to see the household debt ratio at a level no higher than not 80% of GDP.

The central bank does not want to see the ratio of household debt to GDP exceed 80% in accordance with international standards and the standard of the Bank for International Settlements.

However, it will take longer for the household debt ratio to gradually decline and come into balance with a gradual recovery in the economy, central bank governor Sethaput Suthiwartnarueput said at a weekend press briefing. -end last.

“If we take too strict measures, it could impact the accessibility of household sector loans and disrupt the smooth take-off of the Thai economy,” Mr Sethaput said.

During the Covid-19 pandemic, the household debt ratio peaked at around 90% of GDP before falling back to around 88% in the second quarter of this year, due to GDP growth.

However, the current level of around 88% is still too high. Given a sustainable level of debt, the household debt ratio should not exceed 80%, he added.

The central bank continued to launch measures to resolve existing bad debts in the household sector by focusing on unsecured lending products, covering credit cards and personal loans.

The bank’s deputy governor, Ronadol Numnonda, said secured loans, including mortgages, auto loans and contractor loans, account for a large portion at 65% of the total outstanding retail loans in the banking sector, while unsecured loans account for 25%.

The household debt problem stems mainly from non-performing unsecured loans from low-income borrowers, who are part of the vulnerable segment and are feeling the impact of the pandemic.

After focusing on resolving existing bad debts of the household sector, the central bank will focus in the next step on higher quality unsecured lending products to reduce household debt, he added.

The regulator plans to issue a letter to banks and non-banks in the first quarter of next year asking them to work together to stop intensive marketing campaigns of unsecured loan products.

The central bank will ask them to stop campaigns that encourage unnecessary borrowing of unsecured loans, such as loan campaigns offering 0% installment payments, Ronadol said.

In the next step, the central bank will consider revising the criteria for unsecured loan applications, including borrowers’ minimum income, he said.

Currently, the Bank of Thailand requires a minimum income of 15,000 baht per month for credit card applications. The central bank does not set the minimum income for personal loan applicants but lets financial institutions set the amount, depending on their customer segments.

Fighting household indebtedness is a key task among the central bank’s five priorities in 2023. Others take care of the economy for a smooth take-off, normalization of monetary policy, promotion of digital infrastructure, the promotion of the green economy and the development of human resources.

Central bank deputy governor for the monetary policy group, Piti Disyatat, said the bank expects its monetary policy to gradually normalize to a steady level by the end of 2023 when the inflation rate reaches the target range of 1 to 3%.

In a related development, Siam Commercial Bank yesterday announced the increase of the Minimum Lending Rate (MLR) and Minimum Overdraft Rate (MOR) from 0.25% to 5.50% and 6.09%, respectively. It will also increase fixed deposit rates by up to 0.50%. All of these rate increases take effect today.

Krungthai Bank also announced an increase in MLR and MOR from 0.25% to 5.5% and 6.07%, respectively. The bank will also raise fixed deposit rates to a range of 0.15-0.825%, effective today.

Last week, three major banks — Bangkok Bank (BBL), Kasikornbank (KBank) and Bank of Ayudhya (Krungsri) trading as Krungsri — announced an increase in fixed deposit and lending rates after the bank Central Bank raised its key rate last Wednesday from 0.25% to the current 1%.

BBL’s rate hike took effect on September 29, KBank’s yesterday and Krungsri’s today.

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