Thailand’s cabinet has approved a range of debt relief measures aimed at reducing the nation’s alarmingly high levels of household debt, the country’s Prime Minister Paetongtarn Shinawatra announced yesterday.
Speaking to reporters, the Thai leader said that the measures, which will include interest suspensions and reduced principal payments, aim to support retail borrowers and smaller businesses who are struggling with debt, Reuters reported.
The measures are part of the Pheu Thai-led government’s attempt to revive Thailand’s economy, which has struggled to emerge from the recession of the COVID-19 pandemic. One key objective is to reduce the country’s 16.3 trillion baht ($482 billion) in household debt, which, with a household debt-to-GDP ratio of 89.6 percent at the end of June, is by far the highest in Southeast Asia and second in Asia only to South Korea.
Thailand’s high level of household debt has constrained consumption and frustrated the government’s attempts to stimulate economic growth. As Bloomberg explained, banks have tightened the criteria for lending to auto and home-buyers in order to arrest an increase in non-performing loans. In the third quarter, non-performing loans jumped to their highest level in three years, the Bank of Thailand reported, citing consumers’ “low earnings recovery and high borrowings” and the “structural issues and lower competitiveness” facing many small businesses. As Bloomberg reported yesterday, the tightening credit conditions led to a fall in auto production and a slowdown in residential property sales. When the Bank of Thailand made the surprise decision to cut interest rates in October, it cited the restricted lending as a reason.
According to Finance Ministry and Bank of Thailand (BOT) officials, an estimated 1.9 million debtors with 890 billion baht ($26.3 billion) in loans will be eligible for reduced principle repayments and a three-year suspension of interest payments. These measures will be available to borrowers with debts that are up to a year overdue, covering housing loans of up to 5 million baht ($147,964) and car loans of up to 800,000 baht ($23,674). Small business loans of up to 5 million baht are also eligible.
The measures “will help retail and SME debtors who are having trouble repaying their debts to receive targeted assistance, be able to recover, and repay their debts,” the Finance Ministry and BOT said in a joint statement quoted by Bloomberg.
To bring commercial banks on board, the government has agreed to halve their annual contributions to the to the Financial Institutions Development Fund (FIDF) for three years, lowering it from 0.46 percent of their deposits to 0.23 percent. The reduced contributions to the FIDF, which provides financial assistance to troubled institutions, will help banks support debtors. The debt relief by state-owned banks will cost about 39 billion baht ($1.15 billion), which will be funded by the government.
While tackling household debt, the Pheu Thai government is also hoping to stimulate domestic consumption via its flagship “digital wallet” stimulus plan. Under the plan, around 45 million Thais will receive 10,000 baht ($290) payments via a smartphone application, which they will be able to spend in their localities. The second phase of the “digital wallet” is due to roll out next month.