On 10 April 2021, Thailand made significant changes to the statutory interest rate framework for the first time as the interest rates specified in the Civil and Commercial Code (“CCC”) have been enforced for almost a decade. The trigger for the change in the interest rate was due to Covid-19’s recent impact on the Thai economy.
The Emergency Decree Amending the Civil and Commercial Code B.E. 2564 (2021) (“Emergency Decree”), published in the Government Gazette on 10 April 2021, made three significant changes to the interest rate under Section 7 and 224 of the CCC, as well as an addition of Section 224/1. The changes to the interest rate came into effect on 11 April 2021.
Before the amendment, Section 7 provides that the statutory interest rate shall be 7.5% per year if the interest rate has not been agreed upon. After the amendment, the statutory interest rate is then reduced to 3% per year. The new 3% interest rate is subject to review every three years by the Ministry of Finance and is therefore subject to further changes in the future.
Regarding the change under Section 224, the default interest rate for money debts shall bear the statutory interest rate in Section 7 with an additional rate of 2% per year. This results in a 5% annual statutory default interest rate. Therefore, the statutory interest rate specified in Section 7 acts as the base for the default interest rate, as it is subject to review every three years.
Lastly, the addition of Section 224/1 applies to installment payments. This Section provides that the default interest rate can only be applied to the defaulted installment amount, not the remaining principal amount. This is contrary to the previous practice in which the default interest rate is calculated from the remaining principal amount starting from the defaulted installment.
The recent amended statutory interest rate framework applies to debts and defaults due on or after 11 April 2021. Any interest rates agreed before 11 April 2021 shall still be subject to the previous interest rate framework.
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