Household debt should be a national agenda item and legal support is required to manage the problem comprehensively, says Piti Tantakasem, chief executive of TMBThanachart Bank (ttb), in an exclusive interview with the Bangkok Post.
Mr Piti was assigned by the Thai Bankers' Association (TBA), along with Sakchai Peechapat, chief executive of Tisco Financial Group, as the taskmasters of the group's household debt resolution team.
The TBA is collaborating with the central bank and other related parties to ease the country's high level of household debt.
The Bank of Thailand redefined household debt last week, causing the measurement to increase to 16 trillion baht, accounting for 90.6% of GDP.
Almost 100% of the total household debt is under the central bank's supervision after the regulator redefined the debt.
National agenda
Mr Piti said he agrees with the central bank reworking the definition for household debt. Though the move pushed debt to much higher levels, all parties can now clearly see the data, which should enable better management of the debt burden, he said.
Legal support and amendment of some laws are needed to handle the problem, said Mr Piti.
The credit information of retail borrowers under the National Credit Bureau (NCB) facilitates lending, helping financial institutions to handle household debt more efficiently.
If the NCB upgrades the credit information of retail borrowers to an individual credit scoring system, it would help to improve household debt management, he said.
With an individual credit scoring system, the data would better reflect the risk profile of a borrower.
In addition, Mr Piti said the household debt database of the central bank should be incorporated into the NCB's database. This means creditors using the central bank's data would automatically become members of the NCB.
All related parties need to promote better public understanding that the NCB's credit data will increase access to credit, rather than exclude people from the financial system, he said.
"The public currently regards the NCB as a barrier, hindering borrowers' access to loans," said Mr Piti.
"We should work to change that mindset and remind them the NCB acts as a safeguard and opens opportunities for borrowers to access sources of funding better in line with individual risk profiles."
Responsible lending
Responsible lending plays a key role in the banking sector easing the structural debt problem. Measures should attempt to improve loan quality in the financial system, particularly new loan offerings, he said.
The Bank of Thailand plans to implement new regulations for responsible lending later this year meant to improve borrowers' debt repayment ability as part of continued efforts to contain household debt over the long term.
In addition, the central bank plans to supervise banks' environmental, social and governance (ESG) guidelines.
If the NCB adopts the individual credit scoring system, banks can improve their retail loan analysis in accordance with the risk profile of applicants, said Mr Piti.
The new system is a better tool for risk management than the existing debt service ratio of individual loan applicants, he said.
The system would also affect risk-based pricing or the interest rates charged, said Mr Piti.
According to the existing NCB credit record, there are only two types of loan applicants: those who qualify for a bank loan and those do not.
Applicants approved for the same loan product would normally be charged a similar interest rate, he said.
"Under the individual credit scoring system, the interest rate charged differs based on the risk profile of each borrower," said Mr Piti.
"The new system would support responsible lending in the banking sector, gradually solving the country's household debt problem over the long term."
Even though the central bank has yet to implement responsible lending guidelines, ttb implemented several business strategies including a debt consolidation programme.
The bank's debt consolidation scheme allows it to see the overall debt information of a customer, allowing it to ease customer debt burdens through reasonable pricing, he said.
The bank also wants to promote financial well-being through its comprehensive financial products and services, in line with ESG considerations, said Mr Piti.
Empowering sustainability
The country's sixth-largest lender by total assets, ttb has pursued ESG principles since 2018 to expand its business sustainably.
The bank plans to incorporate ESG factors into its operations to ensure sustainable growth under its framework.
The framework calls for ttb to expand its business and support customers and business partners with a full range of financial services including deposits, loans and investment products.
The bank also provides financial technology and platforms to assist social foundations in fundraising, such as digital donation platforms.
He said ttb promotes sustainable finance through a variety of products including green bonds, loans with positive environmental and social impacts, and green loans.
In 2022, the bank helped large corporate customers raise fresh funds from green and blue bonds worth 5.25 billion baht and granted new green loans totalling 13.1 billion.
Meanwhile, financing for coal power plants last year declined by 38% year-on-year.
Mr Piti said by 2028, the bank's portfolio would contain no loans for harmful industries, such as coal mining.
The bank financed ESG-related projects for small and medium-sized enterprises (SMEs) to the tune of 318 million baht. Such loans focused on energy efficiency, pollution management, green transport and supporting female entrepreneurs.
He said the bank aims to grow green loans to 9 billion baht this year, and targets expanding its green and blue loan portfolio to 50-60 billion baht, representing 10% of total outstanding loans over the next five years. Its current green and blue loan portfolio is around 13 billion baht, accounting for 2% of total outstanding loans.
With a foothold in the auto loan business, Mr Piti said ttb is positioned to be the market leader for electric vehicle (EV) loans with a portfolio totalling 6.5 billion baht at present.
EV loans outstanding are expected to continue increasing, in line with positive demand in the Thai market, he said.
The bank continues to work to raise awareness among all stakeholders about the ESG trend and the global environmental goal of moving towards a net-zero target by 2050.
Mr Piti said ttb is ready to support and empower customers to adjust their operations to comply with both domestic and international environmental standards.
Global trends
Last week the Bank of Thailand implemented the first phase of "Thailand Taxonomy", a classification system for economic activity deemed environmentally sustainable.
The effort is meant to help Thai financial institutions meet international standards by offering green financial products and services, while helping customers and related parties to comply with new global standards.
He said ttb is ready to comply with the new framework as it has been following ESG principles since 2018.
The bank has raised awareness among large corporate customers and SMEs about the central bank's new requirements, in line with international standards, said Mr Piti.
For the first stage of the system, the Bank of Thailand aims to classify economic activities with high greenhouse gas emission rates, starting with the energy and transport sectors.
The majority of corporate clients should be able to comply with the new requirements, but some SMEs may face challenges, he said.
The regulator is employing a traffic light system that classifies economic activities as green, yellow or red, depending on their role in climate change mitigation.
Green activities contribute to the goal of climate change mitigation by operating at or close to the net-zero goal for 2050.
Yellow activities facilitate significant emission reductions in the short term with a reliable decarbonisation pathway and prescribed sunset dates. These activities have not yet reached net-zero emissions levels, but can be improved with viable technologies.
Red activities are incompatible with a net-zero trajectory and are not going to become compatible anytime soon.
