Final two candidates for Bank of Thailand governorship reveal debt strategies amid economic uncertainty

The selection process for the next Governor of the Bank of Thailand (BOT) is entering its final stage. The selection committee has submitted the names of the two final candidates to Deputy Prime Minister and Finance Minister Pichai Chunhavajira for consideration:

1. Roong Poshyananda Mallikamas – BOT Deputy Governor for Financial Institution Stability and former Krungthai Bank Executive Vice President of Global Business and Strategy (2017–2019).

2. Vitai Ratanakorn – Director of the Government Savings Bank (GSB), known for steering GSB toward a social banking model and expanding into the non-bank sector.

Krungthep Turakij interviewed both candidates on the economic outlook and key challenges facing Thailand's recovery.

Rung’s holistic approach to debt management

Rung highlighted the growing issue of debt among younger generations, who are entering debt cycles earlier and staying in them longer. Many retirees also remain trapped in debt, largely due to limited financial literacy and unexpected life events.

Rung stressed that the BOT must take a comprehensive approach to household debt by addressing both slow income growth and enforcing responsible lending among commercial banks.

She pointed to the “Khun Soo, Rao Chuai” (You Fight, We Help) scheme as an example, which supports borrowers willing to repay. While the first phase helped reduce debt repayments by 50% in the first year, the programme relied heavily on the borrower’s willingness to resolve their own debt.

“The name says it all – you need to be willing to fight. It's not designed for everyone. If you're fighting, you still have to repay, but the scheme lets you pay just 50% of your monthly instalments in the first year, then gradually increases to 70%.”

The second phase of the scheme was introduced after identifying flaws in the first phase, where over two-thirds of applicants were rejected for not meeting eligibility criteria. The next phase will aim to address these gaps, such as including borrowers with arrears of less than 30 days.

Interest rate strategy and tackling household debt

On the matter of commercial banks cooperating with the Khun Soo, Rao Chuai scheme, Rung explained that participation varied depending on the type of debt. For example, mortgage debt with payment delays of under three months received a strong response from banks. However, for debts that had defaulted for six months or more, the response rate dropped significantly. Car loans, in particular, had very low participation—especially when the default period exceeded six months, in which case banks were barely responsive.

She also pointed out that each bank’s loan portfolio differs. For example, state-owned banks typically have no car loan portfolios, so their participation rate in the scheme was higher compared to commercial banks with a larger proportion of auto loans in their portfolios.

“Setting KPIs for banks to enrol debtors into the scheme may be difficult due to these portfolio differences. But the Bank of Thailand is focused on a best effort approach. As the regulator and promoter of this scheme, in collaboration with the Ministry of Finance and other agencies, we want to see commercial banks doing their utmost within the context of their loan portfolios,” said Rung.

On whether interest rate cuts can help ease debt burdens beyond the scheme, Rung acknowledged that rate cuts do offer relief. However, she warned that from a macroeconomic perspective, Thailand might need something more than just increased liquidity.

“Cutting interest rates is like giving a blood transfusion—it helps, but it doesn’t make you stronger. What Thailand’s economy truly needs now are sustainable business models and a new investment cycle, which we haven’t had for decades,” Rung said.

BOT cuts policy rate but banks fail to pass it on

Rung also noted that since late 2024, the Bank of Thailand has cut its policy rate three times, but the transmission to the real economy has been relatively slow. He acknowledged that this is partly because Thai interest rates are already low or close to the lower bound.

“Globally, when interest rates approach the lower bound, monetary transmission tends to slow. It’s something widely acknowledged in both academic and policy circles: the lower the rate, the less effective it becomes. That’s why commercial banks are slower to respond,” she explained.

That said, compared with the Covid-19 period, Rung stated that the transmission of monetary policy since late 2024 has been slightly more effective. Still, it remains limited and insufficient to truly boost the economy. One of the key factors is credit risk—banks remain concerned that borrowers may be unable to repay or that they might eventually default.

‘Data’ empowers banks to lend with confidence

Rung stated that the Bank of Thailand has launched the “Your Data” project, a multi-sector collaboration aimed at building a transparent financial profile for borrowers. The initiative enables individuals to use their own financial transaction history as a form of collateral, thereby increasing commercial banks’ confidence in extending credit.

In addition, the BOT has introduced a DIY debt resolution programme that allows borrowers to input details about their debts and income. The system then assesses whether their debt is manageable or if they are at risk, and offers initial guidance on which debts should be addressed first and how—such as targeting high-interest loans. The information submitted is also used to generate a letter for initiating discussions with financial institutions, helping borrowers take the first step in negotiating solutions.

Vitai: BOT must remain independent but not isolated

Vitai emphasised that the BOT must uphold the principle of being "independent but not isolated." While the central bank must retain decision-making independence, it must also work collaboratively across sectors to achieve long-term goals and tackle structural economic issues that monetary policy alone cannot resolve. This includes working alongside fiscal policy, the Board of Investment (BOI), the Ministry of Commerce, and the Stock Exchange of Thailand.

Regarding Thailand’s economic outlook, Vitai noted that the economy benefitted in the first half of the year from strong export performance in the first three to four months and a rise in tourist arrivals between January and March. However, the second half of the year presents challenges due to global uncertainties such as US tariff policies, prolonged geopolitical conflicts, and domestic political instability.

The BOT has maintained strong macroeconomic stability—keeping inflation low and strengthening financial institutions—but as global and local conditions become increasingly complex, the central bank may need to expand its role in supporting economic growth.

“The current economic situation is more severe than the 1997 crisis, which mainly affected the wealthy and financial institutions. Today’s crisis affects the majority of the population,” Vitai stated. “Thailand now faces long-term structural challenges, including weakened export competitiveness, a fragile tourism sector, high household debt, and entrenched structural problems. Solving them will require new thinking, new approaches, and collaboration across all sectors.”

‘You Fight, We Help’ yields limited results

Schemes such as the Debt Clinic and You Fight, We Help have provided some relief to Thailand’s household debt crisis, but have not resolved the issue entirely. While hundreds of thousands of debtors have benefited and had their debts restructured through the programmes, many more remain unable to access them.

For Government Savings Bank (GSB) borrowers, the scheme has been implemented across 33% of the combined portfolios of state-owned and commercial financial institutions. Some parts of the programme have shown promising results, but it cannot be said that the initiative has comprehensively solved the debt issue.

Vithai noted that fiscal and monetary policies play different roles in tackling household debt. Fiscal policy tends to be faster, more targeted, and delivers short-term results. Monetary policy, such as interest rate cuts, has a broader scope and takes 6–12 months to show real effects. However, both approaches must work in tandem.

“Interest rate cuts, cash injections, or tax reductions alone won’t fix the problem. There needs to be alignment between monetary policy, fiscal policy, and regulatory measures from other agencies—moving in the same direction and sustained over time. Monetary policy must also be clearer and more proactively signalled,” said Vitai.

From the perspective of a bank that works closely with grassroots borrowers, Vitai commented that the Bank of Thailand's policy rate cuts have been slower than necessary. However, the three recent rate cuts have helped ease pressure. What matters now is clear market communication that rate reductions will continue and be part of a long-term approach.

This also includes the transmission of lower policy rates into lower lending rates by commercial banks and state financial institutions. That pass-through effect has so far been limited—unlike in rising rate environments, where lending rates increase rapidly and fully.

“This may be because banks need time to assess the impact, and with a weak economy, credit risk remains high. This makes financial institutions more cautious about lending, especially to high-risk groups, which continues to hinder credit expansion, even in a low interest rate environment,” he concluded.

Three strategies to tackle household debt recommended

Vitai outlined three practical strategies for addressing Thailand’s household debt problem:

1. Economic growth – Household debt levels will naturally decline if people’s incomes increase. If nominal GDP grows at 4% annually for 2–3 consecutive years, the household debt-to-income ratio will fall accordingly.

2. Lower borrowing costs – Reducing interest rates will allow borrowers to pay off more of their principal while maintaining the same monthly repayments. This would ease individual debt burdens, improve personal liquidity, and gradually reduce overall household debt.

3. Supplementary measures – One approach would be to transfer non-performing, unsecured debt (that banks have already provisioned for) to other agencies at a discounted rate (3–7%) for long-term restructuring.

In addition, financial institutions should be supported in expanding credit. This includes enhancing the role of the Thai Credit Guarantee Corporation (TCG) to cover a wider range of loan types, including non-bank lending. There should also be targeted low-interest loans for specific sectors, such as exporters and SMEs affected by low-priced foreign goods, to encourage greater lending.

Balancing interest rate cuts and new debt creation

Vitai acknowledged that the Bank of Thailand may be concerned that lowering interest rates too much could lead to increased borrowing. However, he believes the overall benefits of interest rate reductions outweigh the risks. Lower rates are a vital tool to help reduce household debt and stimulate the economy, particularly during periods of heightened uncertainty. Still, the real impact only occurs if the rate cuts are passed on to borrowers.

At present, Thailand’s economy is weak and there are fears of a prolonged slowdown. Inflation remains low, and for 2025, it is expected to fall below the BOT’s lower target range of 1%, creating a “low inflation, low growth” scenario. Meanwhile, traditional growth drivers such as tourism and exports may not play a leading role in 2025–2026.

“The economy is now in a challenging state. Some sectors, like financial institutions, are doing very well. But many others, which form the majority, are not in good shape,” Vitai concluded.