Thailand
Thailand: BoT asks for fewer high debt-service ratio loans
The Bank of Thailand has requested banks and their subsidiaries reduce the ratio of new consumer loans extended to vulnerable groups with a high debt-service ratio (DSR) by at least 10% per quarter for four quarters, starting from the second quarter.
The move is part of the central bank’s retail lending guidance, aimed at keeping a lid on the country’s household debt, warding off potential financial stability risks and standardising loan extensions.
The guidance covers all types of consumer loans, with the exception of mortgages, as the central bank implemented a loan-to-value rule governing mortgages starting in April.
“The regulator wants to see a reduction in the high-level DSR of the vulnerable group for 12 months,” said a source in the banking industry who requested anonymity.
By controlling the loan ratio, the central bank is prioritising vulnerable borrowers whose monthly income is 30,000 baht or less, with a focus on first-time workers, Generation Y and the elderly.
According to the retail loan guidance, the DSR cap for vulnerable groups is set at 70% of income.
The source said the central bank is also in the process of standardising DSR to apply to all consumer loan applicants.
The central bank, commercial banks and specialised financial institutions have already completed the new DSR standard. The regulator will discuss the matter with non-bank firms under its supervision and captive finance companies about the possibility that they will comply with the standard.
The central bank has been in discussions with commercial banks for a while about the DSR standard, specifically the definitions of income and debt incurred from all types of consumer loan products, to control the country’s household debt ratio, which rose to 78.7% of the country’s GDP at the end of March from 78.3% at the end of last year.
Each bank has its own DSR standard for the loan scrutiny process, and some lenders have exploited the lack of regulation to leverage their debts.
Ronadol Numnonda, deputy governor for financial institutions stability at the central bank, said the DSR standard will take effect at the end of this year. The definition of income covers both regular and extra income such as overtime and commission, he said.
For the debt side, the new standard will require banks to take into account debt liabilities in addition to money owed to financial institutions.
The standard will help creditors clearly gauge the debt-servicing ability of borrowers and this will improve loan extension analysis and asset quality, accordingly.
“The central bank can get better and clearer information on overall borrowers in terms of both debt repayment ability and affordability, which will lead to suitable management to support financial stability and tapering household debt,” he said.
For the first quarter, auto lending showed the highest growth at 12.3%, followed by 7.9% from credit cards, 7.3% from housing, 6.1% from personal and 3.5% from commercial.
The National Credit Bureau found that there were 21 million borrowers in Thailand at the end of last year.
Source: https://www.bangkokpost.com/business/1722891/bot-asks-for-fewer-high-debt-service-ratio-loans