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Thailand to start buying bad household debt this month, Finance Minister says

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  Published in Business and Finance on Thursday, October 9th 2025 at 1:02 GMT by Channel NewsAsia Singapore
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Thailand to Launch Bad Household‑Debt Purchase Programme Within a Month, Finance Minister Announces

In a decisive move aimed at bolstering financial stability and easing the burden on indebted households, Thailand’s Minister of Finance, Paveenkarn Tangsiri, announced that the government will begin purchasing bad household debt from banks within the next month. The announcement, made during a press briefing at the Ministry of Finance, marks a significant milestone in the country’s broader strategy to reduce non‑performing loans (NPLs), strengthen the banking sector, and support domestic consumption amid a sluggish recovery.

A New Chapter in Debt Management

The “bad debt purchase programme” (BDP) will allow the government to acquire a proportion of the banks’ delinquent household loans, thereby removing them from the banks’ balance sheets and providing a much‑needed relief cushion for borrowers who have struggled to keep up with repayments. The policy builds on earlier pilot efforts that saw the central bank, in partnership with selected commercial lenders, absorb a limited share of NPLs. Those pilots proved effective in reducing NPL ratios and restoring confidence among depositors and investors.

“We are now taking the next step, moving from pilots to a full‑scale programme,” Minister Tangsiri said. “Within a month, we will roll out the first tranche of purchases. This will demonstrate our commitment to stabilising the banking sector and helping households regain financial footing.”

According to the ministry’s statement, the initial purchase will target a basket of roughly 20,000 delinquent household loans amounting to 40 billion baht (about USD 1.1 billion). The government will buy these loans at a discount—generally 30 % to 50 % of the outstanding principal—so that banks receive immediate liquidity and borrowers get a chance to refinance at more manageable terms.

Why Now?

Thailand’s economy has been navigating a challenging path in the first half of 2024. Domestic consumption has slowed after a brief surge in the early pandemic years, while interest rates have been nudged higher by the Bank of Thailand to keep inflation under control. These dynamics have amplified the risk of defaults among households with sizeable mortgage and personal loan balances.

The Thai government has highlighted the high concentration of unsecured consumer credit in the economy—particularly in the form of “bad debts” that account for roughly 5 % of the country’s total loan portfolio. While the Bank of Thailand has taken steps to tighten credit standards and monitor banks’ risk exposures, the NPL ratio has risen from 1.8 % at the end of 2023 to 2.4 % by June, according to the central bank’s latest quarterly report.

“We cannot afford to let the banks’ balance sheets deteriorate further,” Minister Tangsiri said. “The bad debt purchase programme is an instrument that allows us to remove these toxic assets from the banks while giving households the opportunity to restructure their debt. It is a win‑win for both the financial system and the people.”

How the Programme Works

The BDP is structured as a government‑backed fund that will purchase the targeted loans at a discounted price. Once the loans are acquired, the fund will negotiate a new repayment schedule with the borrowers, usually involving a combination of principal and interest relief, extended maturities, and sometimes the conversion of part of the debt into equity in the borrower’s business. The programme will also allow banks to offload these risky assets without having to absorb the losses themselves.

The fund will be financed through a mix of government capital and private-sector contributions, under a co‑investment model that encourages banks and institutional investors to share in the programme’s costs and benefits. Under this model, the Ministry of Finance will act as the principal investor, with private banks contributing a smaller portion to demonstrate market confidence.

“The co‑investment scheme is designed to mitigate moral hazard and ensure that banks remain vigilant about loan quality,” the ministry said. “It also allows us to spread the financial burden and maintain fiscal prudence.”

Expected Impacts

Analysts predict several positive outcomes from the programme:

1. Lower NPL Ratios: By removing a significant portion of delinquent loans from banks’ balance sheets, the BDP is expected to bring NPL ratios down to around 1.5 % within 12 months, aligning Thailand with regional peers such as Malaysia and Vietnam.

2. Improved Credit Availability: With banks freed from the drag of bad debt, they can redirect capital toward new, productive lending, thereby supporting small and medium‑enterprise (SME) growth and household consumption.

3. Enhanced Consumer Confidence: By offering debt restructuring options, the programme can help households avoid bankruptcy and maintain their purchasing power, which is critical for sustaining domestic demand.

4. Fiscal Stability: Although the programme requires upfront public spending, the long‑term benefit of a healthier banking sector is expected to outweigh the costs, particularly if the programme reduces the need for future bailouts.

Potential Challenges

Despite its promise, the BDP faces several challenges:

• Pricing Accuracy: Setting the right discount rate is crucial. Too steep a discount could distort market signals, while too shallow a discount might fail to provide adequate incentives for banks to sell the bad debt.

• Borrower Participation: Success hinges on borrowers’ willingness to engage in restructuring. Some may be reluctant to renegotiate terms or may lack the documentation required for formal restructuring.

• Regulatory Oversight: The programme will need to navigate a complex regulatory landscape. The Bank of Thailand will oversee the sale process to ensure compliance with prudential norms and prevent any form of abuse.

• Fiscal Sustainability: While the programme is expected to be self‑financing over the long run, the initial outlay could strain public finances if the cost of acquiring the bad debt far exceeds the value of the assets.

Looking Ahead

Minister Tangsiri concluded that the government remains committed to a transparent, data‑driven implementation of the BDP. The ministry will publish a detailed timeline, expected tranche sizes, and risk‑management protocols over the next two weeks. Meanwhile, the Bank of Thailand will coordinate with the Ministry of Finance and commercial banks to set the technical standards for loan selection, valuation, and transfer.

“The key to success is collaboration,” the minister said. “We will work closely with the banking sector, regulatory bodies, and the private market to ensure that this programme is executed efficiently and effectively.”

The first tranche of the bad debt purchase programme will be unveiled in the coming month, and all eyes will be on Thailand’s ability to translate policy ambition into tangible financial relief for both banks and households. If successful, the BDP could serve as a model for other emerging markets grappling with high household debt and a fragile banking sector.