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Bangkok Post – Debt relief scheme impact described as limited

Thai banks’ credit standing unlikely to be affected as scope of programme is narrow. By Fitch Ratings

PUBLISHED : 4 Jan 2025 at 05:00

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The effect of the Thai government’s recent debt relief proposals on banking sector credit metrics will be marginal in 2025 based on the initiative’s limited scope, according to Fitch Ratings.

We believe this means the proposals are unlikely to have a significant effect on household debt, the pace of bank lending or economic growth.

The government’s debt relief initiative could benefit borrowers with debt of up to 890 billion baht. However, Fitch believes in practice most of the eligible borrowers’ debts should already be classified as Stage 2 or Stage 3 loans, already provisioned for or potentially written off by banks.

Proposed restructuring under the relief scheme, including reduced instalment payments and interest payment waivers, is not substantially out of line with what banks would usually offer troubled clients. These factors will reduce the policy’s impact on bank credit metrics.

The government indicated bank costs under the scheme will be compensated by redirecting half of the sum that affected banks pay to the central bank’s Financial Institutions Development Fund (FIDF) for this purpose, likely for three years.

All banks currently pay 0.46% of the value of their deposits annually to the FIDF. The sums mostly cover FIDF debts incurred during the 1997 financial crisis.

It remains unclear how these government compensation payments will be treated in terms of accounting, or whether the FIDF funds will be sufficient to fully cover bank costs from the policy. The government could reallocate financing from other programmes if FIDF funds are insufficient to cover the compensation.

The impact for banks should vary, with some potentially net beneficiaries if they receive subsidies for loans that they have already provisioned for.

The scope of the relief scheme appears modest compared with debt relief measures during the pandemic, limiting its effectiveness in addressing high household debt, equivalent to 90% of GDP as of June 2024, or in stimulating bank lending growth.

Other regulatory controls designed to curb increases in household debt, including retail interest rate caps, remain in place. Thailand is one of the few markets in Asia-Pacific offering regulatory relief measures during the post-pandemic recovery, indicating the continued challenges faced by the banking sector.

Fitch expects banking loan growth of 2% in 2025, partly reflecting a modest, gradual decline in interest rates. Loan growth last year is projected at 0.1%, with both figures well below nominal GDP growth of 4.6%. System leverage should continue to dip.



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