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16 Aug 2019

Financial Institutions

Curbing DSR of Low-Income Earners May Shave Retail Loan Growth by 5% (Current Issue No.3023)


               New reports over the past one month may represent signals confirming that the Bank of Thailand (BOT) is in the process of carrying out two important matters to cope with hefty household debt. These include: 1) determining lending guidelines for low-income earners; and 2) preparation to set common lending standards, based on the debt service ratio (DSR). Such details will likely be announced by the BOT soon.

            Curbing the DSR will target low-income earners, in particular those earning not more than THB30,000/month. Commercial banks and their subsidiaries will be required to introduce this measure first. They are advised to be more cautious over approving new loans (bookings) for such a customer segment. Including new loans, the DSR of this customer segment should not exceed 70 percent.

               We at KResearch have assessed that curbing the DSR of low-income earners may affect approximately 1-20 percent of new retail loans of a commercial bank and its subsidiaries, though the impact may vary depending on the structure of its customer base and concentration of its  retail loan portfolios. In addition, it will likely shave 2019 retail loan growth overall within a commercial banking system by about 0.5 percent to 6.0 percent, which would be lower than the 6.5 percent growth projected by KResearch. Our analysis is based on two major assumptions: 1) commercial banks and their subsidiaries have gradually offered loans, based on an appropriate level of the DSR in 3Q19; and 2) commercial banks and their subsidiaries are not able to find new customers to replace their retail loan customers.

           ​     Looking ahead, KResearch views that close attention must be must be paid to the lending standards, based on the DSR. Currently, the BOT is in the process of drawing up its definitions and classifying the types of borrower's income. If the common standards for the DSR computation are more stringent, this may affect financial institutions' consideration to extend new loans for retail borrowers, who already have certain amount of debt, in the future. 

Financial Institutions