Interest suspension proposed for selected debtors

Banks have agreed to suspend interest payments on mortgages, auto loans and small business loans for selected borrowers, easing their debt burden during an uneven economic recovery.
The Thai Bankers Association (TBA) said it was working with the National Economic and Social Development Council and the Ministry of Finance to introduce additional support measures to help vulnerable borrowers.
Banks are providing a temporary grace period for interest payments on mortgages, auto loans and small business loans as part of this targeted initiative, the TBA said in a statement on Tuesday.
Borrowers participating in the debt restructuring will be allowed to pay only the loan principal.
Initially the scheme will target household borrowers and small businesses with small credit lines from financial institutions.
Eligible borrowers must have signed their loan contracts with banks prior to Jan 1 this year and must be facing difficulty meeting their loan instalments, based on debt data as of Oct 31.
However, the qualifications for targeted borrowers and the specifics of the measure are still being considered by the ministry, the Bank of Thailand and the TBA.
According to the statement, all relevant agencies acknowledge the uneven recovery of the economy and household incomes amid high levels of household debt.
The interest payment suspension would support vulnerable borrowers who have the potential to resume normal debt payments in the near future, according to the TBA.
“The suspension requires targeted borrowers to comply with the debt restructuring plan, not incurring new loans during the specified period,” noted the statement.
“If borrowers meet these conditions, they will not be required to pay the suspended interest.”
This guidance should help targeted borrowers effectively reduce their debt burden, while fostering financial discipline throughout the debt restructuring period, according to the statement.
The restructuring measures for unsecured loans will enable individual borrowers and small enterprises to protect their assets, such as homes, cars and real estate, noted the group.
A source in the financial sector who requested anonymity said that initially the interest payment suspension for the three secured loan products is proposed to last for three years, pending official confirmation.
Participants in the programme cannot incur new debt during this period, said the source.
Furthermore, these borrowers will be classified as in debt restructuring status with the National Credit Bureau.
“This suspension will help alleviate monthly debt repayments, particularly for lower-income earners, manyof whom are paying significant interest amounts while minimally reducing their loan principal,” the source said.
An economist from a financial institution who requested anonymity said the interest payment moratorium raises concerns about moral hazard.
The move could lead to reduced interest income for banks and increase credit risk within the banking industry, said the economist.