Swelling household debt could take a toll on Thai economic growth in the next two years, particularly with interest rates set to rise, warns the Kasikorn Research Center (K-Research).
Managing director Charl Kengchon said Thailand's policy rate is expected to increase in line with the expected rise in interest rates of the US Federal Reserve on anticipation of an economic recovery.
Under the normal situation, the Fed's fund rate should stand at 3% to 3.25%, while Thailand's policy rate should be 25 basis points higher than the Fed's benchmark rate.
"Let's say the Fed's fund rate increases to 3% in the next two years. The Thai policy rate should stand at 3.25%, a level that could significantly increase the debt burden of borrowers and increase debt default risks," said Mr Charl.
The Bank of Thailand's policy rate is now 2.5% after it was cut by 25 basis points on May 29 to cushion against declining domestic consumption.
As of the first quarter, Thailand's household debt had increased to 8.97 trillion baht or 77.4% of gross domestic product (GDP) compared with 1.36 trillion or 28.8% during the 1997 financial crisis.
Despite the rising household-debt-to-GDP ratio, the current level is not deemed to be critical, given higher incomes to pay off debts, said Mr Charl.
Low interest rates and low inflation are other key factors supporting borrowers' ability to service their debts.
Siwat Luangsomboon, K-Research's head of money and banking research, said concerns over rising household debt have been mounting due to the lower growth rate of household income and savings than that of the debt burden.
From 1991-96, the pre-1997 financial crisis period, household savings to income averaged 14.4% compared with 9.4% from 2007-11.
After the crisis, banks gave people greater access to funds, which supported growth of consumer loan growth and higher household debt.
Stringent risk management has helped to maintain the quality of loans. Non-performing retail loans of local commercial banks stand at a marginal level of about 2% of total consumer finance.