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29 Nov 2023

Thai Economy

KResearch views that informal debt is a complex issue affecting social aspects, quality of life, and household economy(Business Brief No.4027)

คะแนนเฉลี่ย
        KResearch is of the view that an important goal in solving informal debt is to bring debtors back into the formal financial system. As part of the Bank of Thailand’s sustainable solutions to Thailand’s household debt problems, it has introduced the risk-based pricing (RBP) criteria for unsecured loans to assist informal debtors. Meanwhile, the government's key guidelines in addressing informal debt include the examination of the status of both debtors and creditors, including incentives offered to creditors in a collaboration to help address problems for their debtors. In the near future, close attention must be paid to the progress of such efforts and measures to address formal household debts that KResearch expects that outstanding household debt will likely increase to approximately THB16.4-16.5 trillion by the end of 2023, accounting for roughly 90-91 percent of GDP.
        At a press conference on guidelines to address household debt held on November 28, 2023, the government declared the resolution of informal debt as a national agenda priority. The Thai government has assessed that the amount of current informal debt may be at least THB50 billion. To address this issue, the government will overhaul the operations of several relevant agencies, establish a central database and tracking system. Additionally, loan projects of specialized financial institutions will be promoted to help bolster liquidity for debtors.
        KResearch views that informal debt is a complex issue affecting social aspects, quality of life, and household economy as borrowers from informal sources are generally charged with interest rates higher than 15 percent, which exceeds the legal limit set under Article 654 of the Civil and Commercial Code. Moreover, they may face aggressive debt collection practices from creditors. From the perspective of borrowers, resorting to informal borrowing, therefore, seems to be their last resort after attempting other methods.
        The primary goal in addressing informal debt is to bring such debt into the formal financial system. Once achieved, individuals relying on informal debt will not only be able to access credit within the formal system, but their interest burden will clearly decline, meaning that they can repay debt faster.  As part of the BOT’s sustainable measures to address household debt, it has introduced the RBP criteria for unsecured personal loans and nano finance, which has begun accepting applicants for testing in the BOT regulatory sandbox during 2Q24. We at KResearch view that the RBP criteria for both types of loan will help enhance flexibility for lenders in setting interest rates, based on borrowers' risk profiles. If more lenders pass testing in the BOT regulatory sandbox in the future, it is expected that informal borrowers will have greater access to formal loans in the future.
        Meanwhile, key guidelines of the government's solutions to address informal debt include the examination process of the status of both creditors and debtors, including incentives offered to creditors in a collaboration to help solve problems for their debtors. If there is a delay in creditor tracking, it may be necessary to consider how to take further actions, particularly issues related to lending by specialized financial institutions to cover informal debt. However, if the process progresses smoothly, the level of household debt within the system may increase in line with the amount of loans in that part.  Furthermore, to address household debt in a sustainable manner, it is essential to trace back to the root causes within the household sector, especially income, financial knowledge, and discipline. Additionally, it will be necessary to take further actions in various aspects, particularly concerning household debt within the system. KResearch assesses that outstanding household debt may reach approximately THB16.4-16.5 trillion baht at the end of 2023, accounting for 90-91 percent of GDP, compared to the THB15.9 trillion, accounting for 91.4 percent of GDP reported for 2022.

Thai Economy

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