(Bloomberg) -- Thailand unveiled a fresh set of debt-relief measures to cover millions of retail borrowers and small businesses struggling to repay loans, the latest bid by authorities to tackle the highest level of household debt in Southeast Asia.
An estimated 1.9 million debtors with about 890 billion baht of sticky loans ($26 billion) taken to purchase houses and automobiles and finance small and medium businesses from commercial banks and state financial institutions will be eligible for interest suspension for three years, Finance Ministry and Bank of Thailand officials said at a briefing Wednesday. They will also be offered a reduction in instalments of principal to ease the overall debt burden, they said.
The reprieve for borrowers is the latest attempt by Prime Minister Paetongtarn Shinawatra’s administration to tackle the household debt estimated at about $500 billion. The debt-pile has weighed on the nation’s economy with banks tightening the criteria for lending to auto and home-buyers to arrest a surge in non-performing loans. Bank of Thailand cut interest rate in October, citing the tightening credit conditions as a reason for the surprise move.
Bad loans at Thai commercial banks have soared to a three year high with outstanding loans declining on a quarterly basis for the first time since 2010, according to central bank data. With banks turning more reluctant to lend, Thai auto production has plummeted about 20% this year and prompted the industry to slash local sales target for a second time in November. Residential property sales are set to drop 4.4% this year, according to a research agency.
The measures “will help retail and SME debtors who are having trouble repaying their debts to receive targeted assistance, be able to recover, and repay their debts,” Bank of Thailand and the Finance Ministry said in a joint statement.
The loans will be restructured by commercial banks including Bangkok Bank Pcl, Siam Commercial Bank Pcl, Kasikorn Bank Pcl and Krung Thai Bank Pcl among others. For private commercial banks, the funding for the interest waiver and other reliefs will partly come from a 50% cut in the fee paid by these lenders toward a bailout fund for financial institutions, officials said.
Vulnerable Borrowers
The debt relief by the state-owned banks will cost about 39 billion baht, which will be funded by the government, officials said. Small borrowers with outstanding debt not exceeding 5,000 baht each will have the option of paying 10% of the dues and close the loans.
To be eligible for debt restructuring, borrowers should not have missed interest or principal repayments for more than a year as of Dec. 31, 2023. Loans, which were in default previously and had been restructured between January 2022 to October 2024, are also eligible for restructuring.
Six state-owned Thai banks will introduce a set of measures to support other vulnerable borrowers including debtors with good payment records and new borrowers, officials said.
Borrowers who have defaulted on payments to non-bank lenders will also be eligible for the debt recast. Those with outstanding auto loans of less than 800,000 baht, motorcycle loans of less than 50,000 baht, personal loans of less than 100,000 baht will be allowed to pay 70% of their current loan instalments with loan rates of 10% less than their existing charges for three years, officials said.
The government will help finance the non-bank lenders by providing 50 billion baht of cheap loans at interest rates of 2%. It will also offer a funding of as much as 3 billion baht.
--With assistance from Pathom Sangwongwanich.
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