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BOT moves to tackle high household debt 

Jan 26. 2017
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By Sucheera Pinijparakarn
The Nation

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THE Bank of Thailand (BOT) is conducting mechanisms in several dimensions that are similar to the macroprudential regulation in a bid to deleverage high debt in certain segments while also seriously discussing with financial providers the issue of high household debt.

Household debt is one of four structural problems of Thailand in the view of the BOT, along with the competitiveness of the Kingdom's exports, weak private investment and spluttering small and medium-sized enterprises.

BOT Governor Dr Veerathai Santiprabhob said that even if the expansion rate of household debt slowed down, the figure would remain high compared with the country's gross domestic product. 

Based on a National Credit Bureau (NCB) study, the BOT is concerned by the fact that many people carried their debt through from their younger years through to retirement. The debt burden of retirees is higher than the overall average.

Another concern is the number of non-performing loans (NPL) created by young people. The NCB study found that one-fifth of people aged 29 year had debt that lapsed into a NPL, which the BOT governor attributed to a lack of financial discipline and financial management skill.

People carrying high debt from a young age will be a barrier to the country's productivity in the long run, he said.

The BOT used to implement loan-to-value (LTV) to address the bubble in the real estate sector. LTV is a macroprudential tool, which limits lending to home borrowers at 90-95 per cent of an asset's value.

“The macroprudential policy has been implemented to the target segment [for household debts]. It will not be used across the board. We will unveil the mechanism to help reduce the high household debt,” Veerathai said.

He added that the central bank would carefully monitor the sources of household debt, with a lot of the problem stemming from lending by specialised financial institutions, savings cooperatives and non-banks. 

He said the BOT would discuss the situation with these lenders in a bid to improve their conduct to encourage them to offer the right products to the target customers. 

To other structural problem, the governor said, was the rising NPL of SMEs. 

NPLs of corporates has declined, meaning SMEs face a lot of challenges, the governor said.

“In the past, we may have given importance to the funding access of SMEs but the funding access is not a key point in helping SMEs to upgrade their competitiveness in the long run,” he said, adding many SMEs had overdraft loans.

National e-payment services including PromptPay is expected to help reduce the financial cost of SMEs, especially SMEs in e-commerce which have high efficiency.

The BOT said a lack of workers, including skilled workers, had led to weak private investment. A BOT study of 273 companies found that 65 per cent of them had no new-investment plan for the next 12 months.

Private investment has only been seen in substantial numbers in telecommunications and the renewable energy sector, while foreign direct investment was stable at US$2 billion (Bt70.5 billion) a year on average during the past 10 years.

The lack of workers and skilled workers is structural problem that might take a medium or long-term approach to solving, the BOT said. 

However, Veerathai urged the private sector to speed up their decisions on investment during this current period of low financial costs and government tax incentives. He added that financial costs might rise as a result of US movements, indicated by rising bond yields.

 “We have seen the attempt by the government to enhance private investment, and the value of investment projects that asked for incentives from the Board of Investment last year surged by 1.7 times from 2015, and the government must push them to be actual investments,” he added.

Meanwhile, Thailand's corruption ranking has plummeted from 76th in 2015 to 101st place in 2016 out of the 176 countries assessed last year, according to Transparency International.

Veerathai said that corruption risked hurting the investment atmosphere and reducing confidence in the private sector, resulting in corporates moving aboard to avoid high operating costs.

The challenges that high corruption in the country posed can be witnessed in the move to create global value chains in Thailand, he said.


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