GSB asses terms for informal debtors in Thailand’s debt relief bid

Deputy Finance Minister Krisada Chinavicharana announced that the Finance Ministry has tasked the Government Savings Bank (GSB) with reassessing conditions for informal debtors. This move is part of the government’s steadfast resolution to address economic issues, especially those concerning formal and informal debt.

The responsibility of registering informal debtors and facilitating negotiations with informal lenders has been given to the Interior Ministry. So far, 400 informal debtors have been transferred to the GSB for debt restructuring.

Krisada highlighted that some informal debts escalate into non-performing loans (NPLs) within the formal financial sector. Additionally, some debtors find themselves on the National Credit Bureau’s blocklist, which bars them from securing loans from financial institutions.

As per the Bank of Thailand’s regulations, institutions are prohibited from extending additional loans to informal debtors with NPLs. The GSB intends to engage in further discussions with the central bank to determine if it would be permissible to grant extra loans in such circumstances, if debt restructuring is necessary for informal debtors to receive further loans, or if this regulation can be exempted for specialised financial institutions (SFIs).

As of December 1, 2023, 140,000 individuals claiming 9.8 billion baht in informal debt had registered for the government’s debt relief programme. Of these, 21,000 were eligible for the mediation scheme, with a success rate of 57%, equating to 12,000 successful cases.

The government has managed to bring down the total informal debt by 670 million baht within two months via this scheme.

For the progress on the establishment of joint venture asset management companies (JV-AMCs) to handle the bad debts of SFIs, the GSB is currently in discussions with potential business partners to create a JV-AMC. The bank is awaiting the Bank of Thailand’s approval.

Earlier this year, the Finance Ministry gave the green light to the establishment of JV-AMCs. The ministry anticipates these measures will tackle SFIs’ limitations in managing NPLs.

Existing regulations prevent SFIs from agreeing to debt haircuts, resulting in an accumulation of retail NPLs. The JV-AMCs are expected to operate without profit motives. Therefore, the price of debt transferred from state financial institutions will be based on collateral. In cases without collateral, the discount applies to AMCs’ operating expenses, reported Bangkok Post.