Thailand’s central bank will introduce additional debt consolidation measures enabling retail debtors to combine debts from different lenders in mid-October to cope with the prolonged Covid-19 impact, it said Wednesday.
Debts from retail loans such as personal, credit card, and mortgage loans, including unsecured borrowing, from different financial institutions can be merged into one loan with low interest ceiling rates set by the central bank, said the bank’s senior director Suwannee Jatsadasak.
“The measures will help debtors, especially individuals and small and medium-sized enterprises, ease their burden,” she added. The existing consolidation measures only allow combining debts in the same institution.
The central bank will also require lenders to cancel prepayment fees for the debt consolidation process, along with more incentives to invite debtors to join the programme. Further details will be released soon.
“Debt consolidation will encourage market competition mechanisms and it will benefit borrowers in terms of interest rate reduction,” said Suwannee.
However, Apiphan Charoenanusorn, the President of Siam Commercial Bank (SCB) said the inter-bank debt consolidation, particularly the unsecured debt – which is not backed by any collateral – might lead to debtors seeking new loans from new lenders.
“As long as the debtors are disciplined, we believe debt consolidation will benefit them in the long run,” said Apiphan.
This debt-relief strategy, according to the central bank, is more helpful than lowering the rate ceiling of loans during a time of high credit risk, which would encourage debtors with bad credit to borrow informally.
So far, there are 5.12 million debtors participating in the central bank’s debt-relief measures, accounting for total outstanding loans of 3.35 trillion baht.
Policy rate unchanged
On Wednesday, the bank’s Monetary Policy Committee (MPC) voted to keep its policy rate at a record low of 0.5 per cent for an 11th straight meeting, as widely expected to preserve limited policy ammunition.
The MPC also maintained its economic growth forecast at 0.7 per cent this year but raised the estimate for 2022 from 3.7 to 3.9 per cent made in August, backed by an improved pandemic situation.
However, “The forecasts are still subject to high uncertainty,” assistant-governor Titanun Mallikamas told a briefing.
The Finance Ministry earlier increased the public debt ceiling ratio to gross domestic product from 60 to 70 per cent to allow more fiscal flexibility to tackle the economic downturn.