Thailand devises Ari Score system to ease household debt crisis

The ministry’s statement released on Friday said that this initiative aims to improve access to loans for both individuals and small and medium-sized enterprises (SMEs) through four major public banks.

The announcement follows a recent report highlighting the alarming rise in household debts in the fallout of the Covid-19 pandemic. The report revealed an increase from 14.19 trillion baht (84.1% of the GDP) in 2019 to 16.37 trillion baht (90.8% of the GDP) in 2023, marking a substantial jump of 2.18 trillion baht (15.36% of GDP).

The biggest concern is home and car loans, prompting the government to prioritise the restructuring of the entire debt system. The Finance Ministry emphasised a balanced approach that maintains financial discipline while avoiding the central bank-implemented “moral hazard” for those struggling with debt.

To complement these efforts, the ministry is also focusing on enhancing financial literacy and promoting new savings options tailored to the lifestyles of Thai people. These initiatives will be implemented through state-owned financial institutions, commercial banks, and asset management companies.

Lavaron Sangsnit, the Finance Ministry’s permanent secretary, said the Ari Score, expected to be operational within three months, will simplify the process of granting credit to individuals and SMEs.

He said the Ari Score will provide credit ratings for all individuals, regardless of their credit history, unlike the National Credit Guarantee Agency (NaCGA).

This means, even those blacklisted by credit bureaus can get loans through participating state banks, namely Krung Thai Bank, Government Savings Bank, SME D Bank, and Government Housing Bank.

The Finance Ministry already has extensive data on 60 million Thai individuals, including asset holdings, income levels and state welfare benefits, collected from credit bureaus, deposit protection institutions, and the tax department.

Utilising an AI-powered system, the ministry expects to complete the Ari Score development within three months. The scoring system will enable individuals to assess their eligibility for loans based on their creditworthiness. For example, individuals with a score of 8 out of 10 may be eligible for a loan of up to 30,000 baht, which could assist those seeking to refinance informal debts and reduce their financial burden.

The Finance Ministry also supports the implementation of a “negative income tax” system, which could provide additional relief to taxpayers and welfare recipients. By using tax payment history and information on personal income tax returns, the system can enhance the credit-scoring process.

In the future, the ministry plans to develop a spatial policy to identify regional strengths and weaknesses in Thailand, enabling a more tailored support and assistance.

This policy aims to provide welfare benefits to individuals with low incomes, encouraging them to join the workforce and reducing state welfare expenditures.

The ministry’s efforts to tackle the informal debt issue also extend beyond the Ari Score. In collaboration with specialised financial institutions, such as the Government Savings Bank and the Bank for Agriculture and Agricultural Cooperatives (CBA), the ministry has implemented various credit measures.

According to Pornchai Thirraveja, Finance Ministry spokesperson and director general of the Fiscal Policy Office, the debt relief initiatives have provided financial assistance to 17,448 individuals who had borrowed a total of 812 million baht in informal loans. Additionally, loans under the pico-finance system have been approved for 4.44 million retail individuals, amounting to 43.21 billion baht.

Suchat Boonbanjerdsri, chair of the executive committee of Knight Club Capital Asset Management Public Co Ltd and president of the Thai Asset Management Company Association (TAMCA), expressed concerns about the potential surge in bad debts amid rising household debt. He advocated for the creation of a non-performing debt purchase fund to manage these debts effectively.

While TAMCA and other AMCs support the establishment of such a fund, its implementation would depend on government policies and collaboration between the Finance Ministry, Bank of Thailand and the asset management companies. Suchat noted that AMCs in the private sector may face financial constraints due to the high burden of non-performing loans.

Establishing a state-owned AMC, as proposed by former prime minister Thaksin Shinawatra, can provide a solution to managing non-performing debts by offering discounts on debt purchases.

To address the issue of debtors, Suchat emphasised the need for low-cost financing options and reforms to bankruptcy laws. Streamlining the bankruptcy process and providing support to bankrupt individuals could facilitate their economic recovery.