The Bank of Thailand (BoT) is allowing commercial banks to adapt their business models to help vulnerable customers, in response to the prime minister's directive urging large local banks to lower lending interest rates for vulnerable groups and small businesses.
Speaking at a monetary policy forum on Wednesday, Piti Disyatat, the central bank's assistant governor for the monetary policy group, said banks have the flexibility to vary their business models, including both product offerings and interest rates, to support vulnerable borrowers in alleviating their debt burden in line with economic conditions, market dynamics, and each bank's cost of funds.
"The central bank is ready to support banks that adjust their business models or introduce new programmes aimed at easing the financial strain on vulnerable borrowers. We will monitor the market to ensure overall financial stability," Mr Piti said.
He said that assisting vulnerable borrowers, both in the business and household sectors, has been a primary focus of the central bank since the onset of the pandemic.
The regulator has implemented various debt relief schemes to support borrowers adversely affected by the pandemic. The central bank also adopted a responsible lending approach to enhance the quality of household debt and reduce the long-term debt ratio, he said.
Thailand's household debt-to-GDP ratio is relatively high at 91%, compared with an average of 60% among other emerging economies.
In response to the premier's call to reduce lending rates for vulnerable groups and small and medium-sized enterprises (SMEs), the Thai Bankers' Association on Wednesday convened a meeting to discuss interest rates.
On Tuesday, Prime Minister Srettha Thavisin met chief executives of the country's four largest banks -- Bangkok Bank, Kasikornbank, Krungthai Bank and Siam Commercial Bank -- to advocate for reduced interest rates for struggling borrowers.
Mr Srettha, also the finance minister, had pushed the central bank previously to lower borrowing costs from decade-high levels.
At its latest meeting on April 10, the regulator decided to keep the policy rate unchanged at 2.5% for a third consecutive meeting, resisting government pleas for a rate cut, noting the Thai economy is sustaining its growth trajectory, surpassing the 2023 level.
Mr Piti said the central bank acknowledges the challenges faced by some vulnerable borrowers, particularly SMEs and low-income households, who are encountering tighter credit conditions.
This tightening stems from commercial banks using stricter credit standards because of weakened debt serviceability, resulting from a sluggish income recovery, he said.
Over the past four years, the number of SME loan accounts in the banking industry has doubled from 500,000 to 1 million, with a shift towards smaller entrepreneurs. However, some of these entrepreneurs are unable to access bank loans due to varying risk profiles, said Mr Piti.
Yet he insisted overall financial conditions remain conducive to continued economic growth.
Both businesses and households are still obtaining new credit, despite a moderation in total outstanding loans, primarily due to repayments, said Mr Piti.
Moreover, businesses and households have on average been able to service their debts as usual, he said.