Thai Cooperative Debt Poses Major Risk to Economy, NESDC Warns
A lack of regulation and oversight over Thailand's vast cooperative sector is contributing to a growing debt crisis that threatens the country's financial stability
- Thailand's economic council (NESDC) warns that cooperative debt, particularly from savings cooperatives holding up to 2.7 trillion baht in loans, represents 15% of national household debt and poses a risk of a new financial crisis.
- The risk is heightened by lax lending practices, as only a handful of cooperatives are linked to the national credit bureau, preventing accurate assessment of borrowers' overall debt and ability to repay.
- The NESDC recommends urgent reforms, including mandating credit bureau checks for loans and placing large savings cooperatives under stricter supervision similar to that of commercial financial institutions.
Thailand's National Economic and Social Development Council (NESDC) has issued a stern warning about the escalating debt held by cooperatives, arguing that their operations could spark a new financial crisis.
According to a recent NESDC report, Thailand has 6,092 cooperatives with a total of 11 million members. The report highlights that savings cooperatives are the most significant, holding a staggering 2.27 to 2.7 trillion baht in loans, which accounts for 90% of all cooperative lending.
This massive figure represents approximately 15% of the nation's total household debt.
Danucha Pichayanan, the NESDC's Secretary-General, explained that while cooperatives serve as a crucial financial mechanism, their lending practices pose a serious risk.
Members can easily obtain loans with little to no credit review, and only six of the nation's 1,369 savings cooperatives are voluntarily linked to the national credit bureau. This lack of data sharing makes it difficult for commercial banks to accurately assess a borrower's overall financial health and debt-repayment capacity.
Furthermore, Danucha pointed out that savings cooperatives are incentivised to charge high interest rates on loans in order to generate high dividends for their depositors and shareholders.
This practice often persists even when commercial banks lower their rates. The NESDC also noted that most cooperatives lack the motivation to assist members who are struggling to repay their debts because they have the legal right to deduct loan payments directly from a member's salary.
This has led to a low participation rate in debt relief programmes, with only just over 400 cooperatives joining such initiatives.
The NESDC's analysis identified a number of obstacles to solving the problem, including:
Legal limitations: The process for enacting ministerial regulations to enforce new laws is slow, leaving key areas like lending conditions and data submission to the credit bureau unregulated.
Supervisory gaps: The Department of Cooperative Promotion oversees all types of cooperatives, but the NESDC believes savings cooperatives require stricter supervision akin to that of commercial financial institutions due to their scale and business model.
Operational inconsistencies: Individual cooperative boards have autonomy, leading to varying and often insufficient measures to help struggling members.
To mitigate the risks, the NESDC has called for swift action to finalise and enforce regulations.
The council recommends mandating the use of credit bureau data for loan applications and establishing clear, responsible lending criteria.
It also suggests that savings cooperatives should be placed under the supervision of a body with the same standards as those that regulate financial institutions to prevent future damage.
