The BoT plans to reduce the cap rate
A reduction of 1 to 2% likely to reduce the debt burden
The ceiling interest rates on consumer loan products, which are currently above 20% per annum, are expected to be reduced by at least 1-2%, following government appeals to the Bank of Thailand (BoT ) review credit card interest rates. and personal loans to combat household debt.
An executive at a financial institution, who spoke on condition of anonymity, said the central bank will hold a meeting with financial institutions this week to discuss reduced rate caps for certain types of consumer loans.
The focus will be on retail loan products with interest rates above 20% per annum, including personal loans, auto title loans and nano and pico-finance.
“The cap rates are expected to be reduced by 1 to 2% and will last at least until the end of next year. The cut in cap rates and other relevant details are expected to be completed by next week,” he said. added the source.
As part of the BoT’s debt restructuring program for personal loans to ease the financial burden on individual borrowers amid Covid-19, the regulator reduced the annual ceiling rate for personal loans from 28% to 25%, auto title loans 26% to 24%, and credit card loans 16% to 12%. However, regulators have set the cap rates for nano-finance and pico-finance at 33% and 36% respectively.
The source said the reduction would focus on existing retail loan borrowers, who are paying higher than interest rates as part of the central bank’s debt restructuring measures.
The main groups that will benefit from the reduction are those affected by the Covid-19 pandemic and grassroots people. Lowering rates will not help increase the ability of fragile borrowing groups to repay their debt, but ease the financial burden.
“Lowering the cap rate will help borrowers maintain residual income. Initially, it is expected that each 1% cut will help reduce total interest payments by around 2.5 billion baht per year,” he said. he declared.
However, the drop in rates will affect non-banks, auto loan and auto title lending providers, which are key players in consumer loan products, rather than commercial banks. Overall, financial institutions will feel the impact of lower interest income.
Prime Minister General Prayut Chan-o-cha last week called on the central bank to review interest rates on credit cards and personal loans in an attempt to tackle high household debt. Prepared measures to resolve debt problems include reducing the burden of people’s interest rates, adjusting debt repayment and promoting competition for lower interest rates.
Thai household debt stood at 14 trillion baht in 2020, or 89.3% of gross domestic product (GDP).
According to central bank data, in December 2020, household debt resulted from credit cards and personal loans. The debt burden covering principal loans and interest on these two unsecured loan products represents 58% of total consumer loans.
According to data from the National Credit Bureau in the fourth quarter of 2020, total household debt outstanding was 12.240 billion baht, of which 519.71 billion baht was in credit card loans, a growth of 1 , 2% year-on-year.
The remaining 2.41 billion baht were personal loans, up 12.2% year on year; 2,470 billion baht were in auto loans, down 1.4% year on year; 4.3 trillion baht were in home loans, up 6.8% year on year; Baht 359.52 billion were overdraft loans, down 40.8% year on year; and 2.17 trillion baht were other loans, growing 3.3% year over year.