Debt Clinic’s second phase meets with success

Debt Clinic, the Bank of Thailand’s scheme that pools unsecured bad loans owed to multiple creditors to turn them into performing assets, managed to achieve its target of making 10% of participants pay off the debt.

Some 3,000 individual defaulters have participated in Debt Clinic and 10% have successfully exited from the scheme, said Jaturong Jantarangs, assistant governor of the central bank.

The number of participants in the debt restructuring increased significantly after the central bank implemented the clinic’s second phase, starting in May.

The relaxed conditions were a key factor enabling unsecured loan defaulters to more easily access the scheme, Mr Jaturong said.

Under the second phase, the central bank allowed 19 non-bank financial institutions to join the scheme, on top of the 16 banks in the first phase.

The clinic is part of the Bank of Thailand’s effort to reduce household debt by pooling non-performing loans that are owed to multiple creditors under Sukhumvit Asset Management.

The scheme’s participants are charged a low interest rate of 4-7%, far below the 20% charged by some institutions. The longest debt payment instalment period at the clinic is 10 years, which should also help alleviate debtors’ financial burden.

Mr Jaturong said the 10% of defaulted borrowers who managed to exit the scheme consisted of those who paid off the debt with lump-sum payments and those who completed the full debtservicing period.

“With better financial discipline after joining the scheme, many of them look at their extra income saved from debt payments as a bonus,” he said.

The number exiting the scheme in the second phase far exceeds the first phase, when a mere 16 out of 1,500 participants successfully paid off the debt.

In another development, Mr Jaturong said the central bank is in the process of standardising the market conduct approach of specialised financial institutions (SFIs) to be on a par with commercial banks.

Thai commercial banks were rated fully compliant by the Financial Sector Assessment Programme, jointly conducted by the World Bank and the IMF, but the multilateral lenders pointed out that SFIs still needed to improve.

SFIs have supported central bank demands for them to apply the same standards of regulation as commercial banks.

The World Bank and the IMF suggested regulatory bodies set up an integrated supervisory committee for financial stability and improve risk management standards, corporate good governance and market conduct of SFIs to be on a par with commercial banks.