Thais borrow early and get trapped in a cycle of debt

Thais, nowadays, are indebted from an early age, and the level of their debt is maintained even as they approach retirement.

A study by the Bank of Thailand reports that Thais get into debt in their 20s and tend to borrow more as they age.

It is not surprising, therefore, that Thailand’s household debt has steadily increased to 78.6% of the country’s gross domestic products (GDP), or Bt12.8 trillion in the fourth quarter of last year, according to figures from the National Economic and Social Development Council.

By comparison, household debts in Thailand averaged 49.89% of GDP from 1991 to 2018. Between 2008 and 2012, the figure rose 12.8% per year, and its size, relative to GDP, surged from 56% to 77%.

Thailand is now a top-ten highest household debt country among 89 countries worldwide and third highest among 29 Asian countries.


Debt at all ages

Even when overall economic performance is less than stellar, people cannot resist the temptation to consume, so they seek loans to fulfil their desires.

A report from the Bank of Thailand says Thais get into debt within the first years of starting work. Half of people aged 30 have personal debt or credit card debts. One-fifth of loan balances of debtors aged 29 are likely to transition into delinquency.

Additionally, Thais are indebted for a longer period of time. They tend to borrow more when they are approaching 30, for their first house or first car, among other things. When they pay off old debts, however, they continue to borrow more throughout their working life.

Therefore, people are not free of debt even when they retire. Thais aged 60-69 are Bt453,438 in debt on average and people aged 70-79 years are Bt287,932 in debt.

Thais have more personal debt, as the median average debt obligation for each person doubles from Bt70,000 in 2010 to Bt150,000 in 2016, the Bank of Thailand reported. The trend reveals the fragility of Thai household finances. Moreover, almost 16%, or 3 million Thais, have debt payments which are 90-days overdue.

Trapped in a debt cycle, these people don’t have enough savings to satisfy their needs and they don’t have sufficient financial literacy or spending discipline.

In addition to a slowing economy, debtors are also persuaded to borrow more by campaigns and promotions offered by financial institutions, which are competing for borrowers.

For example, some financial institutions previously offered cashback mortgages, which enabled borrowers to seek a greater amount of loans than the value of their collateral.

The Bank of Thailand has recently introduced macro-prudential measures to mandate that financial institutions assess each borrower’s ability to repay a loan based on a prudent debt-service ratio. For example, the central bank imposes a limit on loan-to-value ratio for mortgage loans and a tightening of auto loans to ensure responsible lending practices.

At the end of the day, though, it depends on whether the borrowers are sufficiently equipped with life skills to constrain their needs to within their financial means. Even when borrowers are rejected by financial institutions, there is always the option to borrow from loan sharks.

Beware of credit karma though, because borrowers may get easy money from these illegal lenders, but the borrowed money comes with exorbitant interest rates.


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