Household debt reaches 18-year high

Household debt reaches 18-year high

Mortgages, occupation loans, and borrowing for daily needs main driving factors

Thailand's household debt has hit an 18-year high after rising to 90.5% of GDP in the first quarter.
Thailand's household debt has hit an 18-year high after rising to 90.5% of GDP in the first quarter.

Thailand's household debt has hit an 18-year high after rising to 90.5% of GDP in the first quarter.

Kasikorn Research Center (K-Research) reported Thailand's outstanding household debt increased to 14.13 trillion baht in the first quarter of 2021, or 90.5% of GDP, the highest level in 18 years according to Bank of Thailand data.

In the fourth quarter of 2020, the household debt ratio was 84.9%.

The prolonged Covid-19 outbreak this year led to an economic slump and swelled household debt. As a result, K-Research changed Thailand's household debt forecast in 2022 to a range of 90-92% of GDP from 89-91% previously.

Outstanding household debt increased by 88.1 billion baht in the first quarter this year on a quarter-on-quarter basis because of three core loan types: mortgages, occupation loans, and loans for daily needs, including food.

In the first quarter this year, outstanding mortgage loans rose by 5.53 billion baht compared with the previous quarter, in line with marketing campaigns of property developers.

The promotional campaigns focused on low-rise projects priced between 1-3 million baht and 3-5 million baht. This market segment contains mostly middle to upper-income home buyers, who have strong purchasing power and did not feel a significant impact from the outbreak. As a result, this segment can still repay debt.

For occupation loans, outstanding debt increased by 4.01 billion baht in the first quarter this year compared with the previous quarter. Borrowers needed money for cash flow to survive the prolonged outbreak.

Debt outstanding increased by 3.35 billion baht for consumption loans in the first quarter this year, on a quarter-on-quarter basis. This segment faced a liquidity crunch because of lower incomes during the pandemic and needed funds for daily spending.

The survey found a prolonged outbreak in the second half of 2021 is raising concerns about income and employment.

Retail loan borrowers who applied for the central bank's debt relief programme increased to 1.69 million accounts in April this year from 1.68 million accounts in March.

In April, retail loans outstanding under this debt relief scheme represented 12.4% of the total individual loan portfolio of the banking sector.

K-Research forecasts the number of retail loan borrowers applying for the central bank's debt restructuring programme would increase from June to the third quarter.

Under this scenario, the research house estimates the growth rate of the country's household debt outstanding in 2021 to be either the same level as 2020, at 4.1%, or higher.

This means the growth rate of household debt this year could exceed GDP growth for the fourth consecutive year.

The central bank also announced as of June 28, financial institutions have approved soft loans under the central bank's scheme for 19,427 small and medium-sized business operators, accounting for a total of 59.1 billion baht. The largest portion of 68% was offered to small entrepreneurs, while the credit line per borrower was 3 million baht on average.

With positive signs for soft loan approvals, the central bank expects approvals to meet the Thai Bankers' Association's target of 100 billion baht in October this year, said Jaturong Jantarangs, the Bank of Thailand's assistant governor, supervision group 1.

Moreover, loan approval under the asset warehousing scheme was 941 billion baht for 11 business operators, as of June 28.

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