Thailand's Persistent Debt Issue: A Hindrance to Economic Growth
Government considers providing debt relief to 3 million debtors, allocating 10 billion Thai Baht to resolve non-performing loans (NPLs)
Thailand's indebtedness has long been a significant hurdle for economic expansion, impacting the capacity of its citizens to consume. By the end of 2024, household debt in Thailand was estimated to approach an alarming 16.4 trillion baht, equivalent to 88% of the country's GDP. Although the debt-to-GDP ratio has shown a slight decrease, the overall debt volume remains high and continues to pose challenges to the nation's economic growth.
Over the past two years, the government has attempted various strategies to tackle the debt issue, including addressing informal debt, loan restructuring, and providing low-interest loans. To lend a helping hand to debtors with non-performing loans (NPLs) related to homes, cars, and Small and Medium Enterprises (SMEs), as well as debts from non-bank financial service providers, the "Khun Suu Rao Chuay" (You Fight, We Help) program was introduced in late 2024, in collaboration with the private sector. The program aimed to offer assistance to over 2.1 million accounts of approximately 1.9 million debtors, with a total debt value of around 890 billion baht.
Despite the intensity of efforts, the program saw lower than anticipated participation, with only 820,000 applicants (or 990,000 accounts) accounting for only 50% of the target. As a result, the government has decided to extend the registration deadline until June 30, 2025. To better cater to the needs of the target population, the government will now focus on assisting debtors with loans of less than 100,000 baht, which account for 35% of the total bad debts, amounting to 1.2 trillion baht.
Enhanced Debt Relief
Deputy Finance Minister Paopoom Rojanasakul recently disclosed plans for adjustments to the Khun Suu Rao Chuay program, with new criteria being presented to the Cabinet in June. Key adjustments include:
1. Expanded Eligibility for the "Direct Payment, Preserve Assets" Measure:
Originally, the program required debtors to have more than 30 days of arrears as of October 30, 2024. The new criteria will allow debtors with even 1 day of arrears and who have previously restructured their debt to qualify for assistance, broadening access to more people. The revised measure will cover home loans up to 5 million baht, car loans up to 800,000 baht, motorcycle loans up to 50,000 baht, and SME loans up to 5 million baht.
Under this measure, debtors will have their repayments reduced to 50% in the first year, 70% in the second year, and 90% in the third year, while interest will be suspended for three years. During this period, all payments will go towards the principal.
2. Raising the Debt Ceiling for the "Pay, Close, Settle" Measure:
This revised measure will help debtors with NPLs by allowing them to settle their debts with only 10% of the outstanding debt to close the account immediately. The debt ceiling will be increased from 5,000 baht for unsecured debt to 10,000 baht per account for unsecured debt and 30,000 baht per account for secured debt.
Exploring Further Debt Reduction
In addition to the improvements in the Khun Suu Rao Chuay program, it's been rumored that the government is preparing to offer a debt haircut worth 10 billion baht to 3 million debtors. These individuals have outstanding debts totaling 120 billion baht, which will either be reduced or forgiven, affecting millions of people. While this funding amount may seem small, it could have a significant impact on many individuals.
The target groups for debt relief are expected to include individuals with low debts that have been listed on the credit bureau for an extended period and farmers who owe debts to the Bank for Agriculture and Agricultural Cooperatives (BAAC), as well as those aged 70 and over. The aim is to clear these debtors' credit bureau histories, allowing them to regain access to financial resources from formal financial institutions.
The Future of Debt Management
The government's approach to dealing with these bad debts, rather than restructuring or buying them, comes from the fact that many of these individuals have had outstanding debts for over 10 to 15 years and have proved to be unable to repay them. When reviewing the debts of these individuals, it was noted that financial institutions had already written off these debts and accounted for them in their financial provisions. Furthermore, the tax credits that financial institutions received from setting aside provisions had already allowed them to reduce their tax payments by 20%, so this does not affect the overall financial system.
The government has chosen not to buy these bad debts for management because the number of debtors exceeds 3 million, making it difficult to manage them all.
"We need to consider the broader picture for the country, focusing on Moral Hazard to give people a chance to clear their credit bureau status. This will help stimulate the economy. The government is working to reduce NPLs by using a budget allocation, possibly as much as 10 billion baht, to clear long-standing bad debts for these people. But we must set clear criteria, such as how much debt can be written off and for how long. If we decide to proceed this way, over 3 million people will be removed from the bad debt list," a source from the Prime Minister's Office explained.
Debt Forgiveness for BAAC Debtors Over 70 Years Old
The criteria for the debt haircut include looking at the debtor's history and the amount of outstanding debt. For example, BAAC debtors who are over 70 may be eligible for complete debt forgiveness, especially those who have already paid interest for a long time.
Farmers who owe to BAAC and have been affected by falling agricultural prices and high production costs, which are higher than the prices they can sell their products for, may also benefit from this initiative. The government acknowledges that this group of individuals, burdened by debt, will likely never be able to repay their loans. Continuing to provide temporary debt relief would not solve the underlying issue.
These long-standing debts have already circulated through the economy multiple times, and this action aims to resolve these financial woes for millions of individuals, giving them a fresh start.
Agricultural Restructuring for a Debt Solution
Deputy Prime Minister and Finance Minister, Pichai Chunhavajira, has emphasized the importance of addressing the economic challenges for the second half of the year, particularly focusing on the financial sector. Commercial banks have been urged to prepare for anticipated economic conditions by increasing the availability of liquidity loans to support the economy.
Regarding the restructuring of the agricultural production sector, Pichai Chunhavajira states that this is a critical component to the solution for debt problems faced by farmers. Debt relief in this area must be sustainable by reducing production costs and finding new ways to market products. Technology can be employed to process agricultural products more efficiently.
Increasing agricultural product prices can be accomplished through demand-supply mechanisms or agricultural zoning mechanisms to reduce the area of cropland used for crops like rice and replace it with more profitable crops like corn. This approach can help increase crop yields per acre without higher inflation, thereby boosting farmers' incomes.
Soft Loan Measures and Supporting the Economy
Vitai Ratanakorn, President of Government Savings Bank (GSB), has emphasized the seriousness of household debt in Thailand, affecting over 60 million people. Commercial banks have a role to play in providing assistance, including increasing the availability of liquidity loans to support the economy, Vitai suggested.
GSB is preparing a new initiative to provide "debt haircuts" or deferments for 500,000 debtors out of the 3.5 million who typically owe 5,000 to 10,000 baht. These individuals incurred their debts during the Covid-19 pandemic, and the program will be implemented without requiring additional budget allocation.
As for the future, although the Thai economy will still face challenges in the second half of 2025, Vitai remains optimistic, stating that, provided that both state-owned and commercial financial institutions collaborate to implement measures that reduce the impact and adjust profits, the situation will gradually ease.
"Although the economy is currently facing several problems, I am confident that if state banks, commercial banks, and other relevant agencies work together to implement measures that reduce the impact and adjust profits, the situation will gradually ease, and we will overcome this challenging period," Vitai states.
- TAGS
- Government Savings Bank (GSB)
- finance ministry
- NPLs
- Bank of Thailand
- debtors
- haircut
- The Bank for Agriculture and Agricultural Cooperatives (BAAC)
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- The Deputy Finance Minister, Paopoom Rojanasakul, has announced plans to adjust the Khun Suu Rao Chuay program, targeting individuals with low debts and extending the registration deadline for assistance.
- The government is considering offering a debt haircut worth 10 billion baht to 3 million debtors, aiming to help those with outstanding debts for over 10 to 15 years and to stimulate the economy.
- Commercial banks in Thailand have been urged to increase the availability of liquidity loans to support the economy, while the restructuring of the agricultural production sector is seen as a critical component to debt solutions for farmers.
- The Government Savings Bank (GSB) is preparing to provide "debt haircuts" or deferments for 500,000 debtors who incurred their debts during the Covid-19 pandemic, without requiring additional budget allocation.
- The Thai economy continues to face challenges, but Vitai Ratanakorn, President of the Government Savings Bank (GSB), remains optimistic that with collaboration between state-owned and commercial financial institutions, the situation will improve over time.
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