## Household Debt

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---

### A. Introduction and Key Context
- Household debt started to increase in the 2000s and reached a pre-pandemic peak of 85.9 percent of GDP in 2015, then eased to around 82 percent of GDP before the pandemic.
- Driven by the pandemic shock, the household debt-to-GDP ratio surged to 95.5 percent in 2021Q1 and remained elevated at around 90 percent afterward.
- Thailand is one of the countries with the highest household debt-to-GDP ratio compared with emerging market peers.
- Historical deleveraging episodes could last for 5 to 7 years (Bouis, 2013).
- A larger and faster unwinding of non-financial sector debt overhangs could be associated with sizeable medium-term output gains (Chen et al., 2015).

### B. Thailand — Background and Risk Profile
- Behavioral and structural factors:
  - Households borrow from an early age, overborrow, often do not fully understand contract terms, and frequently pay only minimum monthly payments, leading to debt accumulation.
  - Many households lack adequate emergency savings and debt management facilities.
- Composition and indicators:
  - Unsecured loans (credit card and personal loans) account for 28 percent of total loans.
  - NPL ratio rose to 3.28 percent by 2024Q3 from 2.62 percent in 2022Q3.
  - Credit card loans recorded the highest NPL ratio at 4.61 percent (2024Q3).
  - Auto loans recorded the highest special mention loan ratio at 15.69 percent in 2024 Q3.
  - As of September 2024, 64 percent of loan accounts classified as NPLs were credit card and personal loans.
  - For the age group 25-29, 26 percent have at least one account classified as NPL.
  - Debtors spent over half of their monthly income on debt service (as of 2022Q3).

### C. Thailand — Policy Measures Implemented
- Pandemic-era and transitional measures:
  - Reduced minimum monthly repayments of credit card debt; increased credit limits on credit card and personal loans; extension of repayment periods; conversion to term loans; minimum debt relief (many phased out at end-2023).
- Debt restructuring — Debt Clinic:
  - Restructuring solutions for debtors with non-performing loans across banks and NBFIs; rescheduling with longer maturities and lower interest rates; loan collection handled by an asset management company.
- Responsible Lending guidelines and debt resolution measures (since January 2024):
  - Creditors must offer debt restructuring at least once to (1) debtors starting to face repayment difficulties but not yet overdue more than 90 days; and once for (2) debtors overdue more than 90 days.
  - NPL debtors cannot be sold-off until after 60 days counting from the day restructuring terms are offered.
  - For revolving personal loans under BOT regulations not overdue more than 90 days, if debtor has paid more interest than principal over 5 years, the loan is eligible for a settling plan: switch to an installment loan and reduce interest to no more than 15 percent per year for a payoff within 5-7 years.
  - Guidelines require assessment of affordability considering all debt burdens and residual income; promote information provision and responsible customer service.
- “Khun Soo, Rao Chuay” (You Fight, We Help) project (initiated December 2024):
  - Part 1 (home, car, and SME loans): installment reductions to 50, 70, and 90 percent of current monthly installments during the first, second, and third year; interest incurred within these 3 years will be deferred and installments paid wholly to principal; interest forgiven if debtors complete 3-year payments. To compensate banks, allowed to lower fee contribution to the Financial Institution Development Fund to 0.23 percent of deposits from 0.46 percent.
  - Part 2 (retail bad debts ≤ 5,000 THB): lenient restructuring where debtors pay a portion of the balance, NPL account closed, and reported to credit bureau as successfully repaid.
- Financial literacy and education:
  - Regulators working with Ministry of Education and Ministry of Higher Education Science Research and Innovation to make financial education a compulsory subject at all levels of the national curriculum.

### D. Thailand — Program Outcomes and Key Takeaways
- Relaxation of macroprudential measures during and after the pandemic helped vulnerable households and prevented sudden outbreaks of defaults, safeguarding financial stability, but delayed deleveraging.
- With lower economic and household income growth, household debt remained elevated and largely on households’ balance sheets, often with extended or slightly more favorable terms.
- Household credit growth slowed to 0.74 percent y/y in Q3 2024 compared with an average of 3.5 percent y/y growth in 2023, as credit risks increased.

### E. International Case Studies — Features and Outcomes
- Brazil — Desenrola Brasil (July 2023 to May 2024):
  - DSTI ratio: 28 percent in March 2023; 26 percent in June 2024.
  - NPL ratio: 4.18 percent in June 2023; 3.65 percent in June 2024.
  - Program details: auction on debt renegotiation rate; targeted eligibility (income up to twice the minimum wage or registered in Single Registry); covered debts negotiated between 2019 and 2022 with value not exceeding R$20,000; sum of refinancing allowed up to R$5,000 per borrower, guaranteed by the government.
  - Outcomes: helped over 15 million people renegotiate R$52 billion (about 0.5 percent of GDP); household DSTI declined to 26.0 percent in June 2024 from 27.9 percent in June 2023; NPLs declined; household debt-to-GDP ratio increased by another 1.6 percent in June 2024 (y/y); program fiscal envelope R$8 billion (less than 0.1 percent of GDP).
- Malaysia (deleveraging 2008–2017):
  - household debt-to-GDP ratio: 89 percent in 2015; declined to 84.3 percent in 2017.
  - household debt growth rate: 13.7 percent in 2010; moderated to below 5 percent (post-measures).
  - unsecured personal loans growth rate: 25.2 percent in 2008; declined to 2.5 percent.
  - Key measures: tiered pricing on credit card interest; stricter credit card requirements; Responsible Financing Guidelines; maximum loan tenures; Risk-Informed Pricing Standards (March 2014) — vehicle lending rates adjusted up by about 70 bps and residential property lending rates up by about 20 bps.
  - Financial literacy: POWER! Program; integration of financial education into primary curriculum from 2014.
- Korea (2002–2006):
  - credit card delinquency ratio: 11.9 percent in 2002; dropped to 2.6 percent in 2006.
  - Measures: increased provisioning; stronger asset classification; limits on cash advances; tightened capital adequacy and prompt corrective action; government liquidity support and KDB intervention; multiple workout channels and borrower protections.
- Hungary (2009–2015):
  - household debt-to-GDP ratio: 39.4 percent in 2010; 21.1 percent in 2015.
  - FX exposure: over 60 percent of household debt in Swiss francs by 2008; forint depreciated by 27.5 percent vs euro and 32.3 percent vs Swiss franc between Sep 2008 and Mar 2009.
  - Measures: high policy rate, exchange rate protection and early repayment schemes, FX mortgage conversion, bank levy and financial transaction tax, “Settlement” and “Fair Banking” Acts, “Debt cap” regulation (PTI and LTV).
  - Outcomes: sharp fall in FX lending share from 52.8 percent at end-2014 to 3.0 percent in Oct 2015; significant banking sector losses 2011–2015; tightening of lending conditions and weaker growth.
- Other international practices:
  - Hong Kong SAR IVA (2002); Taiwan personal debt restructuring (2006); Ireland Personal Insolvency Act 2012 (Debt Relief Notices, Debt Settlement Arrangements, Personal Insolvency Arrangements); Croatia “fresh start” (2015); Czech Republic “Milostivé léto” (2021–2024); U.S. CARD Act (2009) and student debt “Fresh Start” (ended Sep 2024); U.S. bankruptcy Chapters 7 and 13.

### F. Conclusions and Policy Recommendations
- Overall strategy:
  - Adopt a comprehensive, multi-pronged approach combining ex-post measures (address existing debt stock) and ex-ante policies (prevent new debt buildup).
- Ex-post design principles:
  - Be mindful of moral hazard.
  - Seek to limit fiscal costs by involving the private sector and/or using partial government guarantees.
  - Target debt relief and forgiveness at the most vulnerable households while minimizing fiscal cost.
  - Engage private sector creditors to connect creditors and debtors and limit government expense.
- Ex-ante (preventative) toolkit:
  - Macroprudential policies are essential, alongside financial literacy campaigns and consumer protection regulations.
  - Consider introducing a broad-based DSTI ratio, reinforce LTV ratios, implement risk-informed pricing, strengthen documentation and verification for new credit, and enhance credit information systems.
  - Consider bans on aggressive marketing of credit cards, promotion of debit card use, and caps on excessive interest rates.
  - Regulatory coverage should be comprehensive and include NBFIs and state-owned banks to minimize regulatory arbitrage.
- Deleveraging calibration:
  - Carefully calibrate intensity and pace to avoid adverse impacts on private consumption and growth.
  - Avoid overly aggressive deleveraging that impairs banking sector profitability and capital positions (as in Hungary), which can cause credit contraction and impede private consumption and investment.
- Analytical tools:
  - Use stress tests and scenario analyses to simulate potential policy effects on the banking sector and the broader economy.
- Institutional roles:
  - BOT has authority to deploy the countercyclical buffer framework and should consider developing a systemic risk buffer framework to protect the banking sector from build-up of system-wide risks.
  - Continue financial literacy initiatives (free courses/materials) and partnerships with education ministries to integrate financial education in the school curriculum.

### G. Strengthening Personal Debt Workout Programs and Fiscal Considerations
- Strengthen personal debtor rehabilitation program and insolvency arrangements; develop a socially acceptable and relatively simple personal bankruptcy mechanism (following Korea, Hong Kong SAR, Ireland, United States).
- Avoid rolling over unviable loans to prevent moral hazard.
- When considering bailouts or large interventions:
  - Carefully calculate the cost of a government bailout and the following exit after the crisis.
  - Implement bailouts and exits cautiously to avoid excessive fiscal burden and moral hazard.
- Use carefully sized government guarantees to motivate creditor renegotiation without encouraging repeated default.

*Source: sipea2025055 (selected content provided).*

### 1. Household Debt ______________________________________________________________________ 6

### 1. Household Debt

### A. Introduction and Key Context
- Household debt started to increase in the 2000s and reached a pre-pandemic peak of 85.9 percent of GDP in 2015, then eased to around 82 percent of GDP before the pandemic.
- Driven by the pandemic shock, the household debt-to-GDP ratio surged to 95.5 percent in 2021Q1 and remained elevated at around 90 percent afterward.
- Thailand is one of the countries with the highest household debt-to-GDP ratio compared with emerging market peers.
- Historical deleveraging episodes could last for 5 to 7 years (Bouis, 2013).
- A larger and faster unwinding of non-financial sector debt overhangs could be associated with sizeable medium-term output gains (Chen et al., 2015).

### B. Thailand — Background and Risk Profile
- Behavioral and structural factors:
  - Households borrow from an early age, overborrow, often do not fully understand contract terms, and frequently pay only minimum monthly payments, leading to debt accumulation.
  - Many households lack adequate emergency savings and debt management facilities.
- Composition and indicators:
  - Unsecured loans (credit card and personal loans) account for 28 percent of total loans.
  - NPL ratio rose to 3.28 percent by 2024Q3 from 2.62 percent in 2022Q3.
  - Credit card loans recorded the highest NPL ratio at 4.61 percent (2024Q3).
  - Auto loans recorded the highest special mention loan ratio at 15.69 percent in 2024 Q3.
  - As of September 2024, 64 percent of loan accounts classified as NPLs were credit card and personal loans.
  - For the age group 25-29, 26 percent have at least one account classified as NPL.
  - Debtors spent over half of their monthly income on debt service (as of 2022Q3).

### C. Thailand — Policy Measures Implemented
- Broad-based pandemic-era measures (many phased out at end-2023):
  - Reduced minimum monthly repayments of credit card debt; increased credit limits on credit card and personal loans; extension of repayment periods; conversion to term loans; minimum debt relief.
- Debt restructuring: Debt Clinic
  - Restructuring solutions for debtors with non-performing loans across banks and NBFIs; rescheduling with longer maturities and lower interest rates; loan collection handled by an asset management company.
- Responsible Lending guidelines and debt resolution measures (since January 2024):
  - Creditors must offer debt restructuring at least once to (1) debtors starting to face repayment difficulties but not yet overdue more than 90 days; and once for (2) debtors overdue more than 90 days.
  - NPL debtors cannot be sold-off until after 60 days counting from the day restructuring terms are offered.
  - For revolving personal loans under BOT regulations not overdue more than 90 days, if debtor has paid more interest than principal over 5 years, the loan is eligible for a settling plan: switch to an installment loan and reduce interest to no more than 15 percent per year for a payoff within 5-7 years.
  - Guidelines require assessment of affordability considering all debt burdens and residual income; promote information provision and responsible customer service.
- “Khun Soo, Rao Chuay” (You Fight, We Help) project (initiated December 2024):
  - Part 1 (home, car, and SME loans): installment reductions to 50, 70, and 90 percent of current monthly installments during the first, second, and third year; interest incurred within these 3 years will be deferred and installments paid wholly to principal; interest forgiven if debtors complete 3-year payments. To compensate banks, allowed to lower fee contribution to the Financial Institution Development Fund to 0.23 percent of deposits from 0.46 percent.
  - Part 2 (retail bad debts ≤ 5,000 THB): lenient restructuring where debtors pay a portion of the balance, NPL account closed, and reported to credit bureau as successfully repaid.
- Financial literacy and education:
  - Regulators working with Ministry of Education and Ministry of Higher Education Science Research and Innovation to make financial education a compulsory subject at all levels of the national curriculum.

### D. Thailand — Program Outcomes and Key Takeaways
- Relaxation of macroprudential measures during and after the pandemic helped vulnerable households and prevented sudden outbreaks of defaults, safeguarding financial stability, but delayed deleveraging.
- With lower economic and household income growth, household debt remained elevated and largely on households’ balance sheets, often with extended or slightly more favorable terms.
- Household credit growth slowed to 0.74 percent y/y in Q3 2024 compared with an average of 3.5 percent y/y growth in 2023, as credit risks increased.

### E. Brazil — Case Study Summary
- Background:
  - Debt Service-To-Income (DSTI) ratio peaked at 28 percent in March 2023 from 20 percent in August 2020.
  - Debt-to-income rose by 8 percent during the pandemic.
  - At end-2023, more than 40 percent of consumers had defaulted on some form of debt.
- Desenrola Brasil program (July 2023 to May 2024) — key features:
  - Auction on debt renegotiation rate: creditors offered discounts via auction; more than 600 financial and non-financial creditors joined; discounts averaged 83 percent and could reach 96 percent.
  - Targeting and guarantees: eligible debtors had gross monthly income up to a maximum of twice the minimum wage or were registered with the federal government’s Single Registry of Social Programs; covered debts negotiated between 2019 and 2022 with value not exceeding R$20,000 (approximately US$3650); sum of refinancing allowed up to R$5,000 (approximately US$910) per borrower, guaranteed by the government.
  - Repayment: borrowers could pay in cash or installments with up to 60 months; no down payment; repeated default could lead to principal covered by the Treasury and adjusted by central bank policy rate.
  - Financial literacy: free materials and courses on the platform; BCB required financial institutions to adopt financial education measures (Resolução Conjunta 8).
  - Cap on credit card interest: limit on total amount charged for interest and financial charges on revolving credit and installments not to exceed 100 percent of the original debt (principal).
- Outcomes:
  - Helped over 15 million people renegotiate R$52 billion (about 0.5 percent of GDP) in overdue debt.
  - Household DSTI declined to 26.0 percent in June 2024 from 27.9 percent in June 2023.
  - NPLs declined from 4.18 percent in June 2023 to 3.65 percent in June 2024.
  - Household debt-to-GDP ratio did not decline significantly and increased by another 1.6 percent in June 2024 (y/y).
  - Program fiscal envelope R$8 billion (less than 0.1 percent of GDP); participation below the initial target population of more than thirty-two million potential debtors.

### F. Malaysia — Case Study Summary
- Background:
  - Household debt-to-GDP increased from 66 percent in 2008 to 89 percent in 2015.
  - Growth rate of household debt peaked at 13.7 percent in 2010.
  - Personal loans peaked at 25.2 percent of total loans in 2008.
  - A large portion of personal financing was issued by NBFIs, accounting for about 60 percent of outstanding personal financing to households.
  - Outstanding credit card balances increased by 15.2 percent in 2010; balance written off for credit cards increased by 28.5 percent in 2011.
  - Leverage for lower-income borrowers was 4.4-9.6 times annual income versus 2.3-3.3 times for other income groups.
- Policy measures by Bank Negara Malaysia (BNM) mostly between 2011 and 2014:
  - Tiered pricing on credit card interest rate (implemented July 1, 2008) to encourage timely payments.
  - Stricter credit card requirements (Credit Card Guidelines from April 1, 2011):
    - Increased minimum income requirement from RM 18,000 to RM 24,000 per annum for new credit cards.
    - Limit on number of credit cards (no more than two issuers) and credit limits (not exceeding two times individual’s monthly income per issuer) for lower-income individuals.
    - Result: expansion in credit card revolving balances moderated by 8.4 percent between April and December 2011; number of credit cards approved declined.
  - Responsible Financing Guidelines (effective January 1, 2012):
    - Required affordability assessments, robust income verifications, and prudent debt service ratios; BNM engaged other oversight authorities to promote consistent implementation across NBFIs.
    - Formal requirements for credit cooperatives issued December 2012.
  - Introduction of maximum loan tenure (July 2013):
    - Personal financing maximum tenure 10 years; residential property loans 35 years; car loans 9 years.
  - Tightening on personal loans (Policy Document on Personal Financing implemented July 5, 2013):
    - Prohibited pre-approved personal financing products without an application from the borrower.

*Source: https://www.imf.org/-/media/files/publications/selected-issues-papers/2025/english/sipea2025055.pdf*

### introduction of new personal financing products or variations of existing products must be

### sipea2025055 - introduction of new personal financing products or variations of existing products must be

### Malaysia: regulatory and consumer measures
- Introduction of new personal financing products or variations of existing products must be approved by the BNM.
- After these measures, the annual growth in outstanding NBFI lending to the household sector more than halved in 2013 together with a marked slowdown in the growth of personal financing.
- Risk-Informed Pricing Standards implemented in March 2014 to strengthen pricing policies and practices due to signs of underpricing in intense competition, particularly in motor vehicle financing.
  - Lending rates on new financing for the purchase of vehicles adjusted upwards by about 70 basis points (bps) after the Standards.
  - Lending rates on new financing for residential properties adjusted upwards by about 20 bps after the Standards.
- Financial literacy enhancements:
  - Initiatives include bankinginfo, insuranceinfo, and the Pengurusan Wang Ringgit Anda (POWER!) Program.
  - POWER! launched in January 2011, targeted initially at young and new borrowers; later extended to consumers at different life stages and workplace delivery.
  - From 2014, financial education themes were integrated into the primary school curriculum.
  - Since 2011, credit card issuers required to provide clear disclosures on implications of making partial settlements on overall outstanding card balances.
  - Banks actively promoted debit cards as an alternative for making payments.

### Malaysia: program outcomes and key statistics
- Household debt-to-GDP ratio:
  - Declined to 84.3 percent in 2017 from the 2015 peak of 89 percent.
- Household debt growth:
  - Moderated to below 5 percent (post-measures).
- Growth of unsecured borrowings (personal loans):
  - Declined sharply to 2.5 percent.
- Regulatory coordination:
  - BNM worked closely with other supervisory agencies to ensure consistency across banks and NBFIs to minimize regulatory arbitrage.

### Korea: crisis background, policy measures, and outcomes
- Background:
  - Credit card debt peaked at 15 percent of GDP in 2002.
  - Total household debt rose from 37 percent of GDP in early 1999 to 62.5 percent of GDP by Q4 2002.
  - Credit card delinquency ratio reached 11.9 percent in 2002.
  - Number of people in default peaked at 3.75 million in 2003.
- Policy measures (2002–2004):
  - Increased required provisioning for household loans (applied to insurance and finance companies).
  - Strengthened asset classification: loans overdue by three months or longer to be classified as substandard if they exceed 60 percent of collateral value.
  - Required credit card issuers to cut the portion of cash advances to 50 percent or less.
  - Tightened capital adequacy requirements for banks and CCC.
  - Tightened prompt corrective action criteria; issuers could be banned from issuing new cards if delinquency rates exceeded 15 percent for over one month.
  - Government liquidity support and debt-equity swaps to rescue LG Card; Korea Development Bank (KDB) intervened in January 2004.
  - Multiple workout channels including private workouts (up to 5 years), a “bad bank” (up to 8 years interest-free repayment and blacklist removal), Credit Counseling and Recovery Service (debt forgiveness up to one-third and up to 8 years repayment), Personal Debtor Rehabilitation Program (PDRP) with 3–8 years repayment and debt exemption, and personal bankruptcy alternatives.
  - Additional borrower protections: identity and income verification, bans on aggressive marketing and unwarranted debt collection, promotion of debit card use, encouragement to participate in credit rehabilitation programs.
- Outcomes:
  - Rescue of LG Card did not cause a fiscal burden ex-post; creditor banks recorded accounting profit when LG Card was acquired in 2007.
  - Credit card delinquency ratio dropped to 2.6 percent in 2006 from above 10 percent in 2002–2003.
  - Household debt-to-GDP ratio remained elevated at 67.5 percent in 2006.

### Hungary: FX lending, policy response, and trade-offs
- Background:
  - By 2008, over 60 percent of household debt was denominated in Swiss francs.
  - Household debt-to-GDP ratio peaked at 39.4 percent in 2010.
  - Forint depreciated by 27.5 percent against the euro and 32.3 percent against the Swiss franc between September 2008 and March 2009.
  - Household loans NPL ratio peaked at 19.2 percent in 2014 Q4; non-mortgage loans’ NPL ratio reached 16 percent.
- Policy measures:
  - High policy rate to address depreciation; easing only in July 2009 after strains lessened markedly.
  - Exchange rate protection and early repayment schemes introduced in 2011 with preferential exchange rates (involved losses for banks and government).
  - FX mortgage conversion:
    - First introduced in 2011: non-performing FX mortgages could be converted into local currency with 25 percent of the loan canceled by mid-May 2012.
    - February 2015: conversion into forints with a fixed exchange rate applied to all FX-denominated mortgage loans.
  - Bank levy and financial transaction tax to accelerate deleveraging.
  - “Settlement” and “Fair Banking” Acts (September and November 2014) mandated compensation for “unfair lending practices” (e.g., unilateral interest rate increases, exchange rate spread) via principal reduction and cash transfers; restricted unilateral interest rate and cost hikes; regulated borrower information; allowed contract termination under certain conditions.
  - “Debt cap” regulation effective January 1st, 2015 with two pillars:
    - Payment-to-income (PTI) ratio limiting debt-servicing burden when taking new loans.
    - LTV ratio for collateralized loans.
- Outcomes and key takeaways:
  - Household loans outstanding declined in 2015; share of FX lending fell substantially due to FX conversions.
  - The share of foreign currency denominated lending to household declined from 52.8 percent at end-2014 to 3.0 percent in Oct 2015.
  - Policy measures contributed significantly to losses in the Hungarian banking sector in 2011–2015; only banks without FX lending reported profits.
  - Consequences included tightening of lending conditions, contraction in credit growth, historically low investment rates, and weaker economic growth.
  - Important takeaway: when implementing deleveraging policies, authorities should consider burdens on the financial sector and potential economic costs; consider macro-prudential and micro-prudential policies as alternatives to monetary policy for deleveraging.

### Other international practices to facilitate deleveraging
- Hong Kong SAR (2002) and Taiwan Province of China (2006):
  - Hong Kong’s Individual Voluntary Arrangements (IVA) system: informal court-supervised alternative to bankruptcy.
  - Taiwan’s personal debt restructuring program offered lower interest rates and longer repayment periods, covering 30 percent of total card balances.
- Ireland:
  - Personal Insolvency Act 2012 introduced three statutory solutions:
    - Debt Relief Notices: debts up to 20,000 euros could be completely written off for people with virtually no assets and very little income.
    - Debt Settlement Arrangements: for unsecured debt, repay an affordable percentage for up to five years, remainder written off.
    - Personal Insolvency Arrangements: settlement of secured debt up to 3 million euros and up to six years of repayment.
- Croatia and Czech Republic examples:
  - Croatia (2015) offered a “fresh start” to 60,000 poorest citizens with partial forgiveness of bank, public utility, tax, and telecommunication debts.
  - Czech Republic “Milostivé léto” initiatives (I–IV between 2021–2024) forgave additional charges and required debtors to pay only principal or a portion; Milostivé léto III helped 143 thousand self-employed persons and 32 thousand employers with social security debts between July and September 2023; in 2021–2022 legislation helped more than 61 thousand people.
- United States:
  - 2009 Credit Card Accountability Responsibility and Disclosure Act enhances disclosures, limits overcharges and fees, constrains card issuance to minors and students.
  - U.S. Department of Education “Fresh Start” program ran until end of September 2024 for student debt: allowed borrowers to get loans out of default, remove default record, regain access to financial aid and government loans; collections paused; access to income-driven repayment (IDR) plans with payments less than 10–20 percent of discretionary income; loan rehabilitation remains an option after program ends.
  - Bankruptcy laws:
    - Chapter 7: discharge of certain debts to give an honest debtor a "fresh start."
    - Chapter 13: repayment plan over three to five years; if monthly income < state median, plan for three years unless extended "for cause"; if monthly income > state median, plan generally for five years.

### Conclusions and policy recommendations
- A comprehensive, multi-pronged approach to household deleveraging is necessary; combine ex-post measures (to address existing debt stock) and ex-ante policies (to prevent new debt buildup).
- Ex-post measures should:
  - Be mindful of moral hazard.
  - Seek to limit fiscal costs by involving the private sector and/or using partial government guarantees.
- Ex-ante policies:
  - Macroprudential policies are essential, alongside financial literacy campaigns and consumer protection regulations.
- Regulatory coverage:
  - Should be comprehensive and include NBFIs and state-owned banks to minimize regulatory arbitrage.
- Deleveraging calibration:
  - Carefully calibrate intensity and pace to avoid adverse impacts on private consumption and growth.
  - Avoid overly aggressive deleveraging that impairs banking sector profitability and capital positions (as in Hungary), which can cause credit contraction and impede private consumption and investment.
- Analytical tools:
  - Use stress tests and scenario analyses to simulate potential policy effects on the banking sector and the broader economy.

*Source: sipea2025055 - introduction of new personal financing products or variations of existing products must be (IMF).*

### 26.      The authorities should continue to strengthen personal debt workout programs for

### sipea2025055 - 26.      The authorities should continue to strengthen personal debt workout programs for

### Strengthen personal debt workout programs
- Continue to develop the personal debtor rehabilitation program and insolvency arrangements.
- Develop a socially acceptable and relatively simple personal bankruptcy mechanism, following examples in Korea, Hong Kong SAR, Ireland, and the United States.
- Avoid rolling over unviable loans to prevent creation of moral hazard.

### Fiscal considerations when adopting deleveraging measures
- Take fiscal costs into consideration when adopting measures for deleveraging.
- Target debt relief and forgiveness at the most vulnerable households while minimizing potential fiscal cost.
- Engage the private sector in restructuring efforts to connect creditors and debtors and limit government expense (example: Brazil case study).
- Use carefully chosen size of government guarantees to motivate creditor renegotiation without concern about repeated default.
- When there is potential spillover from household debt burden to a broader financial sector crisis:
  - Carefully calculate the cost of a government bailout and the following exit after the crisis.
  - Implement bailouts and exits cautiously to avoid excessive fiscal burden and moral hazard.

### Ex-ante measures (prudential toolkit and borrower protection)
- Continue ongoing efforts to develop the prudential policy toolkit so it can be deployed once credit growth recovers.
- Practices implemented in case studies that should be considered:
  - Introduce a broad-based DSTI ratio.
  - Reinforce LTV ratios.
  - Implement risk-informed pricing.
  - Strengthen documentation requirements and verification for new credit.
  - Enhance credit information systems.
- Bank of Thailand (BOT) actions:
  - BOT has the authority to deploy the countercyclical buffer framework.
  - BOT should consider developing the systemic risk buffer framework to protect the banking sector from build-up of system-wide risks.
- Education, financial literacy enhancement, and better borrower protection are necessary to prevent over-indebtedness.
  - Consider bans on aggressive marketing of credit cards, promotion of debit card use, and caps on excessive interest rates.
  - Encourage financial institutions to adopt financial education measures, enhance disclosures to consumers, and participate actively in individual credit rehabilitation programs.
  - Continue financial literacy initiatives such as free courses and materials on money and debt management and partnerships with education ministries to include financial literacy in the school curriculum.

### Key statistics and takeaways from Table 1: Thailand: Summary of Four Case Studies
- Brazil (Deleveraging Period 2023-2024)
  - DSTI ratio: 28 percent in June 2023
  - NPL ratio: 4.18 percent in June 2023
  - DSTI ratio: 26 percent in June 2024
  - NPL ratio: 3.65 percent in June 2024
  - Policy measures: Resolution measures: Desenrola Brasil program (Auction on debt renegotiation rate; Targeted at low-income households and guarantee from government); Preventative measures: Financial literacy campaign; Cap on credit card interest
  - Key takeaway: An innovative program assisting defaulted households to renegotiate debt and regain access to credit with private sector participation and limited fiscal costs.
- Malaysia (Deleveraging Period 2008-2017)
  - household debt-to-GDP ratio: 89 percent in 2015
  - household debt growth rate: 13.7 percent in 2010
  - unsecured personal loans growth rate: 25.2 percent in 2008
  - household debt-to-GDP ratio: 84.3 percent in 2017
  - household debt growth rate: 5 percent in 2017
  - unsecured personal loans growth rate: 2.5 percent in 2017
  - Policy measures: Preventative measures: Tiered pricing on credit card interest rate; Stricter credit card requirements; Responsible lending practices; Introduction of maximum loan tenure; Tightening on personal financing; Risk-Informed Pricing; Financial literacy enhancement: POWER! Program.
  - Key takeaway: A good example of how supervisory agencies need to ensure consistency in regulation to avoid regulatory arbitrage when a large portion of the debt is issued in NBFIs.
- Korea (Deleveraging Period 2002-2006)
  - credit card delinquency ratio: 11.9 percent in 2002
  - credit card delinquency ratio: 2.6 percent in 2006
  - Policy measures: Resolution measures: Took over a troubled credit card company; Several workout vehicles for resolving debts; Preventative measures: Tightened prudential policies; Additional administrative steps and borrower protection.
  - Key takeaway: Examples of policies undertaken to avoid spillovers to the broader financial system when there is a massive credit card default.
- Hungary (Deleveraging Period 2009-2015)
  - household debt-to-GDP ratio: 39.4 percent in 2010
  - household debt-to-GDP ratio: 21.1 percent in 2015
  - Policy measures: Resolution measures: Exchange rate protection and early repayment schemes; FX mortgage conversion; “Settlement” and “Fair Banking” Acts; Preventative measures: High policy rate to defend depreciation; Bank levy and financial transaction tax; “Debt cap” regulation.
  - Key takeaway: An example of how deleveraging measures taken by the authorities without thorough consideration could impair banking sector profitability and solvency, and lead to a further credit contraction and economic slowdown.

*Source: sipea2025055 (selected content provided).*

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_Source: https://www.imf.org/-/media/files/publications/selected-issues-papers/2025/english/sipea2025055.pdf_