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BoT sets expectations of lenders to keep down household debt

Aug 05. 2019
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By The Nation

The Bank of Thailand (BoT) has revealed its new policy for loaning in order to control household over-indebtedness, which has been rapidly increasing.

The BoT has set out five guidelines for banks to consider as the national overseer aims to ensure banks remain sustainable. 

Wajeetip Pongpech, assistant governor of the financial institutions policy group, will impose a new policy for retail loans in order to control household over-indebtedness and to force banking institutions to take more responsibility before approving loans, given that Thailand’s households debt has increased to 78.7 per cent of GDP.

High competition in the retail loan market has encouraged households to go deeper into debt, which has caused a high level of concern at BoT. When a household has received too much credit, it could lead to an unmanageable level of debt, especially in the low-income households at most risking of a debt-trap. Household debt could increase to a level where it affects the nation’s financial stability and economic growth.

Under the new policy, banking institutes are to consider three factors. First, they must demonstrate concern about credit risk, by examining a customer’s solvency and financial status to determine if they have sufficient cash flow to meet their daily needs.

Second, financial institutions need to design products which are appropriate to a customer’s repayment performance. Last, the loans officer should not push for a sale that creates over-indebtedness on the part of the customer.

Wajeetip also laid out five protocol to be followed in offering loans. The first involves creating an organizational culture concerned about the financial problems of costumers, while the second protocol would ensure that products are designed to meet the real demand of customers. Third, customers are due a clear explanation of the product on offer, and a lender must take into consideration a customer’s repay performance before approving a loan. Finally, the loaner must provide fair terms and conditions for customers.

Wajeetip added that the new policy for retail loans is just one of the new protocols that every banking institute is expected to follow under the sustainable banking model. The good-practices approach is to be agreed between the Thailand Bankers Association and commercial banks on August 13, with the policy fully implemented in 2020.

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