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Bank of Thailand deputy governor seeks to balance debts

The Bank of Thailand’s deputy governor speaks to Peter Janssen about how the country aims to reduce its sizeable household debt and non-performing loan levels, while returning the banking sector to growth.
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Bank of Thailand deputy governor seeks to balance debts

When S&P Global Ratings lowered its ratings on four of Thailand’s leading banks on March 21, 2022, the Bank of Thailand’s (BOT’s) deputy governor Ronadol Numnonda was quick to issue a statement. He pointed out that S&P had “noted that the outlooks on these banks are stable given that they are well-capitalised with high level of loan loss provision”.

Mr Numnonda, with more than a decade of experience in banking sector supervision, was appointed BOT deputy governor in charge of financial institutions stability in 2018. In an interview with The Banker, he shared his views on household debt, rising levels of non-performing loan (NPLs) and other challenges faced by Thailand’s banking system.

Q: What has the BOT been doing to tackle Thailand’s household debt, which has reached 90% of gross domestic product (GDP)?

A: The BOT put a priority on this issue many years ago. Even pre-Covid, we had issued a lot of measures to reduce the indebtedness of households. For example, we set up debt clinics as a way of facilitating the debtors and creditors with issues such as credit card debt that faces a 16% interest rate charge.

The clinics are a formulating facility, so you can reduce the interest ceiling to almost 4–5%. What we are encouraging is not a short-term restructuring, but a long-term sustainable restructuring.

Q: Past Thai governments have issued debt moratoriums for the poor. Why not do the same?

A: This is a moral risk. I don’t think moratoriums are the answer and with a debt moratorium, once the moratorium ends, the debt is still there.

Q. After two years of the Covid-19 crisis, nearly 15% of the banks’ debt is still deemed bad debt and will require deep restructuring. Are you worried about this bad debt turning into NPLs?

A: This 15% is down from 30% in 2020, so that means half of it is out of restructuring. That is a good sign that the restructuring is working and the economy is helping them to get out of the bad debt zone. I think the NPLs will be, at most, 5%; but fixing this will be a gradual process.

Q: With that much bad debt why do you claim the banking system is stable?

A: [The banks’] capital adequacy ratio is at 20%, well above the minimal requirement. And they have provisioning that is six times higher than their NPLs. With all the geopolitical scenarios out there, they still have a big buffer of provisions, so it is not going to impact their capital.

Q: But where is the banks’ growth going to come from in the future? It seems like they are heading into a low-profit era.

A: If they do not start to change themselves, if they stand still, then they won’t survive.

With the digitalisation that is coming, you can see that the banks are using technologies to answer the need to be more aggressive in terms of improving efficiency. And they need to make a bigger pie for themselves — for example, by using alternative data to be able to provide small and medium-sized enterprise financing, or transforming their lending into green lending.

And now the banking world is borderless, so a bank cannot depend on the local market only. You can see that the banks are tapping into those Thai corporations going overseas. I think that is one way to make a bigger pie. With household debt at 90% of GDP you need a bigger operational space.

Q: Some of the banks have been setting up subsidiaries to invest in digital assets as a new avenue toward profitability. Why has the BOT capped such investments at 3% of their capital?

A: In terms of digital asset innovation, we are not going to say ‘no’ to them if the digital asset can be proven to help the real economy, in terms of efficiency and financial inclusion. But we also have to ensure that the digital assets will not impose risks to financial stability. You have to strike a balance.

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Read more about:  Analysis & opinion , Asia-Pacific , Thailand