Thailand’s household debt remains worryingly high at almost 91 per cent of gross domestic product (GDP) as of the third quarter of last year, due largely to a debt overhang since COVID-19 hit the country in 2020. Corporate debt was almost as high at 87.4 per cent of GDP in the same period, given the rising number of firms making low profit.
Piti Disyatat, secretary of the central bank’s Monetary Policy Committee (MPC), argues that a policy rate cut will not help much as around 40 per cent of household debt, such as mortgage loans, have a fixed interest rate, while half of business loans also have a fixed rate.
A lower rate of interest could encourage people to take on more debt, adding to a cumulative debt burden later, he said.
The MPC kept the interest rate low for a long period since 2014, and that policy is considered as one of the factors that contributed to rising household debt.
The central bank started raising the interest rate in 2022 and 2023, from 0.50 per cent to the current 2.50 per cent per annum, to check rising inflation. Some government officials are pushing for a rate cut in order to boost the sluggish economy and support those who are indebted.
The central bank believes it would be better to implement debt restructuring by working with lenders and borrowers.
Commercial banks have launched debt restructuring to support small and medium-sized businesses as well as households. State-owned banks have introduced debt restructuring and debt moratorium.
The government also has launched a debt restructuring program to support those who owe money to loan sharks.
Impact of household debt
Many families were severely impacted by the COVID-19 fallout and were unable to service their debt due to unemployment and declining income as businesses shut down during the pandemic.
The bottom 20 per cent of families based on income currently have to borrow to make ends meet: 44 per cent of their debt is for consumption and just 3 per cent for mortgages. In contrast, mortgages account for up to 27 per cent of debt and consumption for 20 per cent among the top 20 per cent of families, according to the central bank.
The bottom 20 per cent have average monthly income less than 12,000 baht while it is more than 40,000 baht for the top 20 per cent families.
Many households were unable to repay their car hire-purchase loans last year, resulting in a high volume of vehicle repossession. The repercussion of this situation has been a sharp fall in prices in the used-car market, also impacting lenders who suffer from high loss on resold cars.
The central bank has issued a slew of measures to help debtors clear or reduce their debt burden since the pandemic in 2020.
The latest measure, starting January 1 this year, is a responsible lending program under which the central bank has asked financial institutions to offer debt restructuring at least one time for debtors before their borrowings becoming non-performing loans (NPLs), and restructure their loans at least once after it becomes an NPL.
Vulnerable groups who have what has been designated persistent debt are encouraged to join the conversion of revolving loans into installment payments with interest rate at less than 15 per cent a year. The loans would be fully repaid within five years.
Financial institutions are not allowed to charge a penalty rate for advance payment on personal loans, except in cases of refinancing of mortgage loans in the first three years.
Doubts about debtors
Surapol Opasatien, president and CEO of the National Credit Bureau Co, said that a large number of new loan applications were rejected by banks during the fourth quarter to focus on current borrowers who have a good financial record. The situation in January remains the same.
He said that lowering the household debt from 91 per cent of GDP to 80 per cent in the next three years would be almost impossible. The 16.2-trillion-baht household debt is growing 3.3 per cent annually while the GDP growth rate hovers at around 1.8-2.5 per cent. Therefore, household debt would remain high for a while and this was a new normal, he said.
Household NPLs are estimated at 1.05 trillion baht, down slightly from over 8 per cent to 7.7 per cent, which is a good sign, according to Surapol. Progress in debt restructuring largely by state-owned banks has contributed to a declining trend.
He is worried, however, about special mention (SM) loans reversing back up. SMs rose to 610.6 billion baht in December 2023, up 17.8 per cent year on year, suggesting an inability to service debt. Housing loans classified as SMs rose 31 per cent to 178.3 billion baht in December last year while auto loans increased 7.6 perSurapol Opasatien, president and CEO of the National Credit Bureau Co cent to 208.3 billion baht and personal loans jumped 24.1 per cent to 145 billion baht.
These SM loans could potentially degrade into NPLs.
Middle and lower-income groups are finding themselves in a difficult situation due to the rising minimum retail rate, which has led to a spike in installment payments, he said.
By Thai PBS World’s Business Desk
