Bankers and industry bodies have been calling for an extension of the ongoing measures to help alleviate the economic problems of the masses as the economic condition in the country continues to remain fragile.
Privately most bankers have been reluctantly looking at a possible extension of the three-month grace period given to end consumers for helping pay down their debts be it mortgages or credit card.
“I would not be surprised if the Bank of Thailand (BOT) decides to extend the three-month grace period to six months,” a chief executive officer of one of the banks in Thailand told Thai Enquirer late last week.
The CEO, who did not want to be named, said that the systemic problem of loss of jobs coupled with many having seen their salaries cut by half or more is likely to have a severe impact on the repayments of mortgage and personal/credit card loans.
“Initially when the proposal was put forward to the BOT, the banks had agreed to six-months but when the announcement was made we were shocked to hear that it was just three months,” the CEO said.
Six-months, he added, also may not be enough as the problem in the economy is not something that can be resolved that easily.
His comments were echoed by other high-level executives of other financial institutions and credit card companies who say that even with the reduction in the minimum payments, many of the cardholders are unable to meet the minimum payment requirements.
Ronadol Numnonda, Deputy Governor for Financial Institutions Stability of BOT, said the BOT’s measures to assist retail debtors in the first phrase from March 26, 2020, and came to an end at the end of June 2020 saw many people participate. According to data available 11.5 million small account holders received assistance, representing a total debt of 3.8 trillion baht.
Systematic Risk
Industry insiders say that the country’s entire financial system could be at risk if the situation is at risk with the problems that are happening in the system.
“All in all there are about 15 million accounts that are in this three-month grace period and even if 10 per cent of these accounts go sour, then you are bound to have a major systematic risk to the financial sector,” a chief financial officer of a large consumer loan company said.
He said that what the BOT has done is good, but what is needed is the fact that it needs to be extended further, adding that many people have lost their jobs and/or have had their income decline as companies look to cut salaries.
The majority of the problem is going to come from the instalment loan or the hire/purchase loans which got an extension of three to six months depending on the bank one is dealing with.
The personal loan and the credit card loans, on the other hand, have seen their minimum payment lowered to 3 per cent and 5 per cent respectively.
But what most companies are concerned about is when these ‘payment holiday’ ends. The payment holiday for many has already ended as of June while those who got six months may end by September.
“The big question is how is the BOT going to handle the situation come end September?” the CFO of this large consumer loan firm questioned.
“These customers will have to pay their electricity bill, their water bill, their rent and the repayment of the loans/instalment, while at the same time may or may not have a job to generate money,” he added.
The World Bank yesterday came out to say that it expects as many as 8.3 million people out of the just over 37 million people in the labour force to lose their jobs. This does not include the millions that have had their salaries been cut as companies adjust to the new normal ways to survive in the era of coronavirus.
The economy is also grounding to a halt as economic activities slowed during the course of the first six months of the year amid lockdown. Kasikorn Bank yesterday predicted that the second-quarter GDP figures could be as low as -18.5 per cent, while the BOT itself has said that it expects 2020 GDP figures to be a dip of -8.1 per cent.
Such concerns have been things that have prompted many banks to start to have better loan reserve as many of the banks had gone through the problems during the 1997 financial crisis when bad loans had peaked to nearly half of the country’s banking system loans.
At the moment the NPLs in the system stands at a mere 3.05 per cent as of the end of March 2020 but this figure could rise sharply if the situation continues to worsen.
Taking this into consideration, the BOT has already started to look at options for further easing. The BOT is currently implementing the second phase of opt-in measures that people can choose to participate in to help the debtors be capable of managing the debt appropriately during the economic downturn.
To reduce additional spending for Thai citizens, the BOT will announce a policy starting from August 1, 2020, with a reduced ceiling of credit card interest from 18 per cent to 16 per cent, personal loans from 28.25 per cent to 25 per cent and the vehicle registration loan from 28 per cent to 24 per cent.
Realizing the severity of the situation the Federation of Thai Industries (FTI) has already blown the trumpet to ask the BOT to look at ways of giving a two-year break to the Small & Medium-Sized Enterprises (SME) sector.
Supant Mongkolsuthree, chairman of the Federation of Thai Industries (FTI), has called for financial and non-financial institutions to extend their customers a debt moratorium for two years, instead of six months as he echoed a request by private sectors.
Supant has said that the severity of the economic downturn was unlikely to reverse anytime soon, and revival of the SME and even the big corporate are unlikely to happen in the three to six months that most people had anticipated. And that the recovery would take about at least two years.
