BOT to roll out new standards for granting bank loans by yearend
The Bank of Thailand (BOT) plans to issue Debt Service Ratio (DSR) regulation to control the debt burden of people and ensure low-income earners are not overburdened.
Ronadol Numnonda, deputy governor of BOT’s Financial Institutions Stability, said that by yearend the central bank will launch DSR regulations for commercial banks and financial institutions to use as a standard for lending. At present, the lending criteria varies from bank to bank and this may lead to future debt problems.
“The purpose of the regulations is to urge commercial banks and financial institutions to consider risk factors thoroughly before granting loans,” he said. “For instance, we need to consider whether or not the borrowers can repay, and if they have adequate net income to support themselves and their family. This will prevent people from building their debt burden, which will affect their savings and livelihood on a long-term basis. If implemented correctly, DSR can essentially reduce the number of non-performing loans [NPL] of banks and financial institutions.”
Furthermore, DSR regulations will provide more clarity on what can be counted as income, expenses and debt. This will also make it easier for people to apply for a loan, especially the low-income earners who have no collateral.
Meanwhile, Kiatnakin Bank said the group who need to prevent their household debt from spiking are those who earn less than Bt30,000 per month, new graduates and retirees.
Philip Chen Chong Tan, Kiatnakin Bank’s president, said he agrees with the BOT’s policy of ensuring loans are given out responsibly, adding that banks and financial institutions should be especially careful when granting loans to the above three groups, as they have a tendency to be spendthrifts.
“During a preliminary discussion between BOT, Thai Bankers’ Association and commercial banks, it was agreed that DSR for those earning less than Bt30,000 per month will be 70 per cent, which means they must maintain their debts at a level where they can pay off their loan with a maximum of 70 per cent of their income, while reserving the remaining 30 per cent for their monthly expenses. This rate, however, has to be adjusted in the future,” he said.
