Household debt will continue to rise to 89% of gross domestic product (GDP) this year, led by the middle-income group, according to a study.
Stores have stepped up their campaigns and the middle-income group is the target this year. (Photo by Wichan Charoenkiartpakun)
In the third quarter of last year, household debt climbed to 84.7% of GDP from 83.5% in the previous quarter.
The middle income group will lead in creating new debt to meet their housing, personal and business needs this year, according Kasikorn Research Center.
This was different from last year, when low-income earners spearheaded borrowing, supported by accommodative government policies. The group will begin to face restrictions when asking for new loans this year due to high debt-to-income ratios.
The middle-income group, on the other hand, has a lower ratio than the system's average.
"While the household debt level may move up, it doesn't mean all households are shouldering the same debt burden. The debt repayment ratio among low-income earners is 50% of monthly incomes. The major problem is the cost of living is higher than income," Kasikornbank's think tank said in the study released on Friday.
Another factor driving household debt is the government's effort to reduce informal debt by promoting small-scale financial services such as nanofinance, the use of specialised financial institutions to transfer informal debts into the system.
"This key financial development benefits households, which can borrow at lower costs," the report said.
Tongurai Limpiti, Bank of Thailand's deputy governor for financial institutions stability, said regulators were closely monitoring the situation.
"But no restrictions are needed as the upward trend has slowed. Banks also stick to standard lending criteria such as extending loans at no more than five times borrowers' incomes and interest rates below 20%," she said.