Bank of Thailand Approves 'Debt Consolidation' for Retail Borrowers, Bundling Home Loans to Leverage Collateral
"The Bank of Thailand" has introduced additional measures to support individual borrowers by allowing the consolidation of retail debts, including "credit cards, personal loans, and hire purchase loans," into home loans. This aims to utilize home equity to benefit borrowers by reducing interest burdens from the current rates of 16-25% down to a maximum of 5.5-8.8%. Registration is open until December next year.
The Bank of Thailand (BoT) has implemented measures to assist retail borrowers further through "Debt Consolidation." This allows borrowers to combine other retail loans from the same financial institution or affiliated financial companies, such as credit cards, regulated personal loans, and hire purchase loans, into their home loans to restructure their debt and leverage their home equity.
This method will help reduce the interest burden on retail loans, which typically ranges from 16-25%, to a maximum interest rate equivalent to the Minimum Retail Rate (MRR), currently around 5.75-8.8%. Additionally, the BoT has permitted an extension of the repayment period based on the borrower's ability.
Ms. Thanyanit Niyomkan, Assistant Governor of the Financial Institutions Supervision Group at the BoT, stated that the economic situation remains highly uncertain, with some sectors unable to operate normally, impacting the income of the general public. Therefore, to provide additional support for retail borrowers, the BoT has collaborated with financial institutions and specialized financial institutions to improve debt structures through this debt consolidation method.
Financial service providers must provide sufficient information for borrowers to make informed decisions, such as the advantages and disadvantages of participating in the program, a comparison of the old debt burden with the new debt burden, and alternative debt restructuring options available to borrowers.
This measure will help reduce the repayment burden without affecting the borrower's credit history and without additional costs, such as fees or unnecessary service charges. Borrowers can also utilize remaining credit limits from credit cards or revolving personal loans and will not incur prepayment fees.
Borrowers can express their intention to participate in the program and demonstrate how they have been affected by financial service providers from September 1, 2020, to December 31, 2021.
Mr. Thawilap Rithaphirom, Assistant Managing Director of Bangkok Bank, stated that this measure aims to alleviate the burden on borrowers, which is beneficial for reducing liquidity pressure on both borrowers and banks. The bank has already been supporting customers under this principle by consolidating debts and assessing how the bank can reduce the burden on borrowers.
Regarding the reduced interest rates, it is believed that this may not significantly impact banks since the proportion of credit card and personal loan debts is relatively small. Moreover, in this situation, it is crucial to prioritize helping borrowers first to mitigate their risks and reduce potential impacts on banks in the future.
Mr. Surath Leelathavivat, Deputy Managing Director of Kasikorn Bank, remarked that this is a good measure to help borrowers reduce their interest burdens and address liquidity issues during the COVID-19 pandemic. Thus, borrowers will benefit greatly from this program. However, banks can manage debt consolidation for credit card loans by either closing the credit limit or keeping the card open to mitigate future risks. Typically, banks already have similar programs in place.
Ms. Oranong Udomkantrong, Assistant Managing Director of Retail Loan Products at CIMB Thai Bank, noted that this program is similar to existing bank offerings, such as home equity loans or refinancing to consolidate debts, thereby reducing the burden on borrowers by allowing them to pay off a single debt instead of multiple debts, thus lowering their interest rates from an average of around 18% to just 5-6% based on home loan rates.
However, to mitigate risks, banks may need to close credit limits on credit cards or personal loans to reduce the chances of accruing additional debt. Otherwise, if the cards are not closed, it could lead to problems in the future.
