Deputy Finance Minister Krisada Chinavicharana has proposed a novel response to high levels of household debt: establishing an asset management company (AMC) for efficient management of bad debt.
Household debt has surged to an uncomfortably high level of 90.7% of gross domestic product, Mr Krisada said at a forum organised by the Fiscal Policy Office (FPO) on Friday.
As the overseer of state financial institutions, the Ministry of Finance has set guidelines for resolving household debt, particularly reducing interest for non-delinquent customers so that principal amounts can be reduced faster.
He said the ministry would ask the Government Savings Bank (GSB) to conduct a pilot project to consolidate bad debt from state-owned banks and commercial banks, transferring them to an AMC.
The AMC will issue bills to the financial institution at the same value of the debt with no gain or loss, meaning that proceeds of non-performing loan sales would be returned to the financial institution, said Mr Krisada.
He said bad debt management via an AMC, which was first undertaken after the 1997 economic crisis, did not require a government subsidy.
The economy is recovering gradually from the pandemic but there are many sensitive factors affecting growth, he said. These include tighter monetary policy among trading partners such as the US and Europe, geopolitical conflicts and the country’s ageing demographics.
The Fiscal Policy Office has prepared a financial literacy plan for 2023-27 that targets marginalised groups such as the disabled and young people to improve their skills in money management.
Vitai Ratanakorn, the GSB president and chief executive, said debt consolidation via an AMC would help small debtors get delisted from the National Credit Bureau’s bad debtor list faster.
Bad debtors are currently listed for five years before removal, with a follow-up period of another three years of monitoring.
If debts are managed via an AMC, it would enable efficient management of bad debts and help debtors recover their credit standing more quickly, said Mr Vitai.
He said small debtors with bad debts lack the flexibility that businesses have to resolve debts through various methods, such as a haircut for a “clean” loan, causing bad debts to persist at the bank.