Thailand’s National Economic and Social Development Council (NESDC) has issued a stern warning to the country’s co-ops, telling them their escalating debt could spark a financial crisis.
A recent report by the government planning agency reveals the country has 6,092 co-ops with 11 million members. Savings co-operatives are the most significant players, holding a staggering 2.27 to 2.7tn baht in loans, accounting for 90% of all co-op lending – and 15% of the national household debt.
NESDC secretary-general Danucha Pichayanan accused the co-ops of risky lending practices, with members obtaining loans with little to no credit review, The Nation has reported.
Data sharing is also an issue, with only six of the nation’s 1,369 savings co-ops voluntarily linked to the national credit bureau. This means commercial banks struggle to assess a borrower’s overall financial health and debt-repayment capacity.
Savings co-ops are also incentivised to charge high interest on loans to generate high dividends for depositors and shareholders, said Danucha – even when commercial banks lower their rates.
The NESDC also claimed that co-ops lack the motivation to help struggling members because they have the legal right to deduct loan payments directly from a member’s salary.
This has led to a low participation rate in debt relief programmes, it added, with only just over 400 co-operatives joining such initiatives.
The NESDC warned their are significant barriers when it comes to fixing the problem; the process for enacting ministerial regulations to enforce new laws is slow; there are supervisory gaps when it comes to oversight of savings co-ops by the Department of Cooperative Promotion; and operational inconsistencies in the sector, with Individual co-operative boards having autonomy, leading to varying and often insufficient measures to help members in financial difficulty.
