The Finance Ministry and the Bank of Thailand (BOT) have implemented a series of debt-relief measures to address the debt crisis affecting small businesses and households in 2025.
Recently, the Cabinet has approved a comprehensive set of debt-relief measures, which include the exemption of interest payments and the reduction of installment loans for a period of three years. However, will these measures be effective in alleviating the debt burden?
Key elements of the debt-relief measures
The Cabinet has approved a reduction of 50% in the annual contribution of banks to the Financial Institutions Development Fund (FIDF), which is one of the cornerstone measures.
Banks will contribute 0.23% of their deposits over the next three years, a decrease from the previous 0.46%. The purpose of this reduction is to allocate capital that banks can subsequently allocate to debt-relief initiatives for their customers.
The central bank will conduct an annual evaluation to determine whether or not to maintain or terminate the reduction in the FIDF fee.
By providing assistance to an estimated 2.1 million accounts of 1.9 million debtors, the debt-relief measure intends to resolve this issue. The combined total of loans is 890 billion baht.
Commercial banks, state-owned financial institutions, and non-bank lenders—all of which are subsidiaries of commercial banks—provide these loans to finance small and medium-sized businesses, automobiles, and homes.
Particular Reliefs
According to Bank of Thailand, debtors will be granted interest exemptions for a period of three years and will be granted a reduction in the principal amount of their loan installment payments.
The first, second, and third years will allow them to pay 50%, 70%, and 90% of their current installments, respectively. Higher minimum installment payments would expedite the closure of their debt accounts.
Bank of Thailand Criteria eligibility
The relief measures encompass the following:
● Housing loans of up to 5 million baht
● Loans for automobiles that do not exceed 800,000 baht
Motorcycle loans that do not exceed 50,000 baht
● Loans for small businesses of up to 5 million baht
Personal loans and credit card debts that are associated with housing loans
It is necessary that those loans were advanced prior to January 1, 2024. Borrowers with debts that are overdue for a period of up to one year as of October 31, 2024, are the intended beneficiaries of the measures.
Loans that were previously defaulted and were restructured between January 2022 and October 2024 are also eligible.
Funding sources for debt relief
Commercial banks are anticipated to save approximately 39 billion baht annually as a result of the FIDF’s fee reduction. They will repurpose this sum and supplement it with additional funds to facilitate debt restructuring. On the other hand, the state fund will cover the expenses of state-owned banks.
In order to facilitate this, the government will offer non-bank lenders 50 billion baht in low-interest loans at a rate of 2%.
In the interim, there is also a debt solution available for small borrowers with an outstanding debt of no more than 5,000 baht on each account.
Depending on the agreement between lenders and debtors, they will be able to pay a nominal sum that is equivalent to 10% or 50% of the outstanding balance in order to settle their loans.
It pertains to individual borrowers who had debt that was overdue for a period exceeding 90 days as of October 31, 2024.
Economists Unimpressed
The most recent debt-relief measures seem to be comprehensive and have the potential to alleviate the burden of debtors. Nevertheless, there are economists who are hesitant to endorse its efficacy.
“Those measures address the symptoms, not the underlying causes,” stated Pipat Luengnaruemitchai, the chief economist and managing director of Kiatnakin Phatra Financial Group. “The fundamental issue is that individuals lack sufficient income.”
He wonders as to whether debtors who have defaulted on their obligations are capable of repaying discounted debt. The economy’s gradual expansion does not promote wage growth or income growth among the populace.
Nevertheless, he stated that the debt relief package may be advantageous for a specific group of debtors who are capable of repaying restructured debt.
He also stated that those who resume their debt payments may be able to access new loans in the future if their past poor financial record at the National Credit Bureau improves. This is a form of short-term pain for long-term gain.
They issued a cautionary note regarding the moral hazard issue. Many borrowers who pay their debts on time have taken to social media to express their concern over the debt payment culture and to complain about why they are not receiving any privileges for their good faith.
Pipat stated that the issue of moral hazard may not be as significant if debtors do not anticipate additional assistance from the government.
Assoc. Prof. Sunti Tirapat of the National Institute of Development Administration (NIDA) concurred with Pipat’s assessment, asserting that the debt restructuring’s success would be significantly contingent upon the economy’s overall performance, and the prospects are not promising.
According to Santi, taxpayers would ultimately be responsible for the expenses incurred by state-owned banks and non-bank lenders.
Underlying causes of household debt
Household debt has been a persistent issue, and the consequences of COVID-19 have only served to exacerbate it.
According to a consumer survey conducted by SCB EIC in 2023, households with monthly incomes below 30,000 baht were significantly affected by the pandemic.
Consumer behaviour also contributes substantially to debt accumulation.
Previously, the availability of easy credit and the allure of consumer goods combined to encourage many Thais to spend beyond their means.
Inadequate financial literacy, which restricts individuals’ comprehension of the long-term repercussions of debt, exacerbates this behaviour, particularly among the younger generation.
In the past, the Bank of Thailand’s policy of maintaining a low interest rate served to incentivise consumers to borrow more, resulting in the young generation rapidly accruing debts that exceeded their income.
The unfavourable job market was a contributing factor to the fact that the majority of them were unable to service their student loans.
A significant number of individuals acquired new vehicles by incurring debt. As Chinese electric car manufacturers frequently reduced the prices of their new vehicles, their value plummeted. The low price of repossessed cars subsequently harmed lenders.
The mortgage loans were also converted into bad debt. In the third quarter of the year, the non-performing loans (NPLs) of Thai banks reached the highest level in three years, accounting for 2.97 percent of the outstanding loans.
Banks and non-bank lenders have declined numerous new loan applications due to these circumstances, which has led to low economic activity.
Positive indicators
For the first time in three years, Thailand’s household debt, which constitutes 89.6% of GDP and totals 16.3 trillion baht in the second quarter, fell slightly below 90% of GDP.
However, observers consider it to be a technical issue of GDP expansion rather than a substantial increase in household income.
In the latter months of the year, there were indications of economic recovery, as exports increased.
“However, the nation has experienced trade deficits, and the expansion of exports may be temporary, as importers are concerned about the high tariff rates that will be in effect when President-elect Donald Trump assumes office in January,” stated Pipat.
In the long term, the job market may be under significant pressure due to the potential for artificial intelligence to replace a significant number of workers. Santi cautioned that the current underestimation of the impact of AI on the job market could result in the loss of numerous jobs.
Source: Thai PBS
