Bangkok: Warning! The Bank of Thailand plugs two loopholes in controlling lending criteria and identity verification for 'Virtual Banks'.
According to Thai News Agency, academics are urging the Bank of Thailand (BOT) to address two critical loopholes in lending criteria and identity verification for virtual banks, set to launch in 2026, to prevent a surge in non-performing loans and money mule accounts.
Professor Dr. Ananat Leemakdej, Head of the Department of Finance at Thammasat University, emphasized the urgency for BOT to establish measures to regulate these branchless banks. The proposed measures include mandating that virtual bank service providers allocate 10-20% of loans to sectors like agriculture and manufacturing, to avoid concentrated consumer lending that could lead to bad debt. This initiative mirrors existing regulations for commercial banks and aims to promote fair competition and due diligence.
Furthermore, the emergence of virtual banks is poised to benefit e-commerce platforms significantly, as they form part of the investment alliances opening these banks. Hence, a balanced allocation of loans is crucial to mitigating bad debt risks associated with consumer lending.
Another proposed measure is the implementation of a flexible electronic identity verification (e-KYC) system, alongside risk-based account opening assessment criteria. This system would facilitate access to banking services for self-employed individuals and migrant workers, minimizing the risk of illegal activities such as shilling accounts. However, BOT must ensure that regulations do not impose excessive costs on virtual bank providers, which could deter them from offering services.
Professor Dr. Ananat highlighted the importance of integrating various groups lacking access to traditional banking, including migrant workers, into the banking system through virtual banks. This integration would mobilize more funds for small-scale borrowers, offering more convenient application processes and lower interest rates compared to informal lending.
Virtual banks can extend loans nationwide, enabling wider access to banking funds and reducing reliance on informal lending. However, the increased accessibility and competition among virtual banks could heighten the risk of bad debt if borrowers default. This scenario presents a challenge for virtual bank operators to manage retail deposit mobilization and micro-lending responsibly.
A Thammasat University scholar also advised BOT to foster household financial resilience by announcing a clear stance against purchasing debt or offering debt relief for households with high non-performing loans. This policy would promote financial discipline and proper debt management.
Additionally, BOT should regulate investment groups launching virtual banks to prevent them from using retail lending funds for their affiliated companies, a practice prohibited by law but potentially exploitable due to ambiguous definitions.