15 commercial banks, the Bank of Thailand will establish guidelines for responsible lending as part of their sustainable business operation. Thai banks are encouraged to lend based on environmental, social and governance (ESG) criteria which will serve as protection against adverse consequences, and thus ease potential problems. Four guidelines for responsible lending will be put in place within the end of next year, accounting for stakeholder engagement, internal implementation mechanisms as well as transparency.
Dr. Veerathai Santiprabhob, Governor of the Bank of Thailand, revealed that if banks fail to integrate ESG into their business practices, their financial position may be jeopardised. Banks should adopt responsible lending guidelines and adjust themselves through internal changes in order to fend off problems that would otherwise be caused by their failure to embrace the ESG principles. It is therefore essential for financial institutions, led by their board members and high-ranking executives, to push for incorporating ESG considerations into their business operation and risk management.
At the beginning of this year, many parts of Thailand suffered from PM 2.5 air pollution which immeasurably damaged people's health and caused losses to Thai tourism. Moreover, flooding and other environmental issues have led to a slew of additional problems that the nation faces daily. For the social aspect, household debt has become a chronic condition of Thai society. If left unresolved, the household debt problem will weaken the economic health of Thai households, affecting debt quality and threatening Thailand's growth's prospects in the long run. Moreover, corruption – which is deeply rooted in Thai society – has eroded the country's potential to advance and aggravated its social inequality. Faced with these problems, the Thai banking sector, in its capacity as a financial intermediary, can help fix them by appropriately allocating resources to ease any negative impacts that may occur.
As the Thai Bankers' Association and commercial banks are aware of their primary role in the banking sector as a financial intermediary, they aim to elevate the operation of Thailand's financial sector by establishing a common policy on responsible lending guidelines to ensure that Thailand's commercial banks will have proper procedures to promote socially-conscious loan approvals based on environmental, social and governance (ESG) concerns in order to protect financial institutions and mitigate potential damages. The banking sector is ready to incorporate these policies in their consideration for loan approval next year, setting a course towards sustainability. It is essential for financial institutions to prioritize the setting of clear goals, together with evaluation and examination of the policy implementation. Moreover, related information must be disclosed in a timely manner. This cooperation marks a milestone for Thailand's financial sector in doing business by not only adhering to their internal corporate governance but also the integration of ESG with a holistic approach by considering negative impacts that their businesses may cause, in order to foster sustainability in Thailand's economy and society.
Mr. Predee Daochai, Chairman of the Thai Bankers' Association (TBA), added that TBA recognizes the importance of responsible lending. All of our member banks believe that the financial institution system is an important mechanism in not only providing financial support via lending, but also creating a balance that can help minimize potential risks to the financial sector and Thai economy. Therefore, a commitment by financial institutions towards responsible lending will help protect financial service users and build the nation's stability over the long term.
Given this, the BOT-initiated guidelines for sustainable banking operation in the realm of lending are vital. Such guidelines comprise leadership and responsible lending commitment; stakeholder engagement; internal implementation mechanisms; and transparency. The BOT also encourages banks to be committed to the creation of a culture of financial discipline and business operation that attaches importance to the well-being of the economy, society and environment, based on good governance principles and appropriate risk management. Socially responsible practices among financial institutions are thus conducive to Thailand's sustainable development.