Govt eyes offering haircut for 3 million debtors, readying THB 10 billion to clear NPLs

While the debt-to-GDP ratio has decreased, the total debt remains high and continues to be an obstacle to economic expansion.

Over the past two years, the government has attempted to address the debt issue through various programs, including resolving informal debt, restructuring loans, and providing low-interest loans. Additionally, former Prime Minister Thaksin Shinawatra proposed the idea of purchasing small debts from citizens to be managed by the government, allowing those with bad credit to be removed from credit bureaus and resume financial transactions.

In late 2024, the government introduced the "Khun Suu Rao Chuay" (You Fight, We Help) program, a joint effort between the government and the private sector to help debtors with non-performing loans (NPLs) related to homes, cars, and SMEs, as well as debts from non-bank financial service providers. The program aimed to cover over 2.1 million accounts of approximately 1.9 million debtors, with a total debt value of around 890 billion baht.

However, the program saw lower-than-expected participation, with only 820,000 applicants (or 990,000 accounts), representing just 50% of the target. In response, the government has extended the registration deadline until June 30, 2025, and is focusing on helping debtors with loans of less than 100,000 baht, which account for 35% of the total bad debts, amounting to 1.2 trillion baht.

Revised Measures for Debt Relief

Paopoom Rojanasakul, Deputy Finance Minister, revealed that the Finance Ministry and Bank of Thailand (BOT) have been discussing adjustments to the Khun Suu Rao Chuay program, with plans to present new conditions to the Cabinet in June. Key adjustments include:

1. Expanding Eligibility for the "Direct Payment, Preserve Assets" Measure:

Originally, the program required debtors to have more than 30 days of arrears as of October 30, 2024. The new criteria will allow debtors with even 1 day of arrears and who have previously restructured their debt to qualify for assistance, broadening access for more people. The measure covers home loans up to 5 million baht, car loans up to 800,000 baht, motorcycle loans up to 50,000 baht, and SME loans up to 5 million baht.

Under this measure, debtors will have their repayments reduced to 50% in the first year, 70% in the second year, and 90% in the third year, with interest suspended for three years. During this period, all payments will go towards the principal.

2. Raising the Debt Ceiling for the "Pay, Close, Settle" Measure:

This measure helps debtors with NPLs by allowing them to settle their debts with only 10% of the outstanding debt to close the account immediately. The program’s debt ceiling will be increased from 5,000 baht for unsecured debt to 10,000 baht per account for unsecured debt and 30,000 baht per account for secured debt.

The program’s deadline will also be extended from June 30, 2025, to allow more time for debtors to benefit from these revised measures.

Offering Debt Haircut Worth 10 Billion Baht to 3 Million Debtors

A source from the Prime Minister's Office has revealed that in addition to the improvements to the "Khun Suu Rao Chuay" program, the government is preparing to address NPLs by offering a debt haircut worth 10 billion baht to 3 million debtors. These individuals have outstanding debts totaling 120 billion baht, which will be reduced or forgiven. While this funding amount may seem small, it is set to impact millions of people.

The target groups include individuals with low debts that have been listed on the credit bureau for an extended period and farmers who owe debts to the Bank for Agriculture and Agricultural Cooperatives (BAAC), as well as those over 70 years old. The goal is to prevent these debtors from having a poor credit history and to help them regain access to financial resources from formal financial institutions.

Banks Have Already Set Aside Provisions for Bad Debt

The government's approach to dealing with these bad debts, rather than restructuring or buying up the debts, comes from the fact that many of these individuals have had bad debts for over 10 to 15 years and are unable to repay them. When reviewing the debts of these individuals, it was noted that financial institutions had already written off these debts and accounted for them in their financial provisions. Furthermore, the tax credits financial institutions received from setting aside provisions had already allowed them to reduce their tax payments by 20%, so this does not affect the overall financial system.

The government has opted not to buy these bad debts for management because the number of debtors exceeds 3 million, making it difficult to manage them all.

“We need to consider the broader picture for the country, focusing on Moral Hazard to give people a chance to clear their credit bureau status. This will help stimulate the economy. The government is working to reduce NPLs by using a budget allocation, possibly as much as 10 billion baht, to clear long-standing bad debts for these people. But we must set clear criteria, such as how much debt can be written off and for how long. If we decide to proceed this way, over 3 million people will be removed from the bad debt list,” the source said.

Debt Forgiveness for BAAC Debtors Over 70 Years Old

The criteria for the debt haircut include looking at the debtor's history and the amount of outstanding debt. For example, BAAC debtors who are over 70 years old may have their debts completely forgiven, especially those who have already paid interest for a long time.

Farmers who owe to BAAC and have been affected by falling agricultural prices and high production costs, which are higher than the prices they can sell their products for, may also benefit from this measure. The government has recognized that these individuals may never be able to repay their loans, and continuing to provide temporary debt relief would not solve the underlying issue.

These debts have already circulated through the economy multiple times, and this initiative aims to resolve these long-standing financial issues for millions of individuals, giving them a fresh start.

Pichai Pushes for Agricultural Restructuring to Resolve Debt Issues

Pichai Chunhavajira, Deputy Prime Minister and Finance Minister, discussed the government's efforts to address the economic challenges for the second half of the year, particularly focusing on the financial sector. He stated that discussions with the Bank of Thailand (BOT) and commercial banks have been ongoing, urging them to prepare for the anticipated economic conditions.

Currently, household debt is a major issue, affecting over 60 million people in Thailand. Therefore, commercial banks should play a role in providing assistance, including increasing the availability of liquidity loans to support the economy, he said.

Regarding the restructuring of the agricultural production sector, Pichai stated that this is part of the solution to the debt problems faced by farmers. Debt relief in this area must be sustainable by reducing production costs and finding new ways to market products. Technology should be used to process agricultural products more efficiently.

Additionally, increasing agricultural product prices can be achieved in two ways:

1. Using demand-supply mechanisms

2. Using agricultural zoning mechanisms to reduce the area of crops grown, such as reducing rice cultivation and replacing it with animal feed crops like corn. This approach can help increase crop yield per acre, which will not impact inflation but will raise farmers' incomes.

This will directly increase domestic consumption and help boost the income of the 18 million farmers in Thailand. In restructuring the agricultural sector, it is crucial to carefully consider which crops to promote or discourage, as some crops are not competitive with international markets. As a result, the government will need to provide subsidies but should also explore ways to make adjustments, Pichai said.

GSB to Consider Debt Relief for 500,000 Debtors

Vitai Ratanakorn, President of Government Savings Bank (GSB), revealed that the Prime Minister has assigned the Ministry of Finance to address the household debt issue for those with low non-performing loans (NPLs). These debtors, numbering around 3.5 million, are in need of urgent assistance. By addressing their debt issues, the government aims to reduce the overall household debt ratio, while also enabling these individuals to regain access to credit. The government is considering using part of the budget to settle these debts.

"When looking at the bigger picture, household debt is a structural issue for the country. The high household debt-to-GDP ratio in Thailand has eroded consumer purchasing power and made banks reluctant to issue new loans due to the high-risk cost," Vitai said.

The GSB has been actively running programs to help long-term debtors and is preparing a new initiative to provide debt relief or deferment for 500,000 debtors out of the 3.5 million. These debtors typically owe 5,000 to 10,000 baht, and most of them incurred these debts during the Covid-19 pandemic. The GSB plans to implement this program without requiring additional budget allocation, having already proposed it to the Ministry of Finance and is preparing to present it at the next Cabinet meeting.

Vitai further emphasized that household debt is a serious problem but can be alleviated by debt forgiveness, which would reduce the overall debt level. As the economy grows, the household debt ratio will naturally decrease, and once it reaches 80% of GDP, the economy will regain strength.

Additionally, he mentioned that interest rate reductions could further help alleviate household debt. Lower interest rates will allow debtors to reduce principal payments more effectively, leading to an overall reduction in household debt. The GSB has already implemented programs such as interest rate reductions and waiving interest payments to focus solely on reducing the principal.

GSB Acknowledges Challenges in the Second Half of 2025

Vitai continued, stating that in the second half of 2025, the Thai economy will still face uncertainties from various factors, including the unclear U.S. tax policies, which have yet to be finalized and enforced. Additionally, domestic structural issues, such as the slowdown in the tourism sector—especially with the decline in Chinese tourists, even though there has been some compensation from European tourists—pose challenges.

To support the economy and alleviate the burden on businesses, GSB is preparing a soft loan measure worth 100 billion baht, using its own balance sheet to pass on to commercial banks at an interest rate of only 0.01%. These banks will then lend the funds to entrepreneurs at 3.5% interest, helping to reduce the high interest rates that businesses previously faced (which were as high as 7-8%).

The main target group for these soft loans will be exporters affected by external factors, as well as SMEs impacted by price competition from foreign goods and businesses in the tourism sector and related supply chains.

Additionally, GSB will implement a 2-3% interest reduction for its existing clients who are affected, to help reduce financial burden in a period when the economy has not fully recovered.

As for the second half of the year, while the Thai economy still faces numerous concerns and challenges, Vitai believes the situation will not reach a crisis level. He remains confident that the economy can be revived, provided that both state-owned and commercial financial institutions collaborate in supporting the economy by considering profit reductions and continuously rolling out programs to assist individual debtors and mitigate the impact of the economic situation.

 “Although the economy is currently facing several problems, I am confident that if state banks, commercial banks, and other relevant agencies work together to implement measures that reduce the impact and adjust profits, the situation will gradually ease, and we will overcome this challenging period,” Vitai stated.