KResearch views that digital personal loan market, according to the Bank of Thailand’s guidelines on the use of alternative data for credit analysis in loan approval process, is likely to see “gradual growth” for 2022. As evidenced, digital personal loan outstanding is at approximately THB 7.92-8.5 billion, representing only 1 percent of total outstanding retail loans in the system1. This is due to short-term loan repayment periods, and the fact that service providers are still in their trial period. Lenders, including banks and non-banks, aim to reach unbanked and underbanked segments to provide the service. However, amid a fragile economic recovery and rising cost of living while income remains stable at best or is even lower due to the impact of COVID-19, such factors may cause high risk of default on debt repayment. As a result, lenders may begin with loan approvals for modest credit lines in order to establish an initial payment history or record of borrower behaviour, prior to service expansion by offering higher credit lines, or other financial products and services suited to market demand.
However, the service providers still face multiple challenges, particularly in using customer data for identity verification, and gaining an understanding of customer behaviour through Know Your Customer (KYC) process, thus leading to improved risk management, reduced operating costs, as well as an effective risk assessment model. These are key factors in driving the future growth of digital personal loans. KResearch projects that over the next 1 to 3 years, the digital personal loan business will remain in its early learning stage, and more time may be needed to develop and improve the risk assessment model based on the use of various new alternative data.
1 Compared to total outstanding retail loans in the system (as of December 2021)
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