The amount of debt held by Thai households might not decline next year, but it is less likely to harm economic stability, says a senior Bank of Thailand official.
"Thailand's household debt might not fall in 2017 but the household debt-to-GDP ratio could edge lower if the economic momentum remains strong," said Roong Mallikamas, senior director of the central bank's macroeconomic and monetary policy department.
If the economy grows at a strong pace, people will have higher income and improve their debt servicing ability, she said.
"The current high level of household debt is less likely to impact the Thai economy since people remain cautious about spending and financial institutions are very cautious in extending new loans," said Mrs Roong.
According to the central bank's data, Thailand's household debt at the end of June stood at 11.2 trillion baht, up 4.33% year-on-year and 0.97% quarter-on-quarter from 10.8 trillion over the same period last year and 11.1 trillion over the past three months.
Thailand's household debt ratio, however, fell to 81.3% in the second quarter from 81.5% in first quarter due largely to overall economic growth.
Thailand's household debt surged significantly after the 2011 floods as people borrowed money to refurbish and repair their homes. Moreover, the previous government's consumption-driven economic model, in particular the excise tax rebate for first-time car buyers, also fueled household leverage.
Under Yingluck Shinawatra's government, the first-time car buyer scheme offered tax rebates of up to 100,000 baht to those who bought passenger vehicles with a maximum engine capacity of 1500cc or pickup trucks with unlimited engine capacity, but priced under 1 million baht.
Car owners, however, are required to maintain ownership of the vehicles for five years if they want to avoid paying back their tax rebates. The scheme had created artificial demand, causing a spike in domestic car sales at that time and, most importantly, putting many car buyers into debt.
Mrs Roong was optimistic that the Thai economic recovery in 2017 should be better than this year but loan demand from big companies is expected to remain subdued as they prefer raising funds through debentures to lock in the current low interest environment to avoid higher borrowing costs in light of prospects of a future US Federal Reserve rate hike.
But other types of loans are expected to grow as people still keep spending, farm income remains sound, the government is constantly ramping up investment and the tourism sector continues performing well.
The country's GDP fared better than expected, growing by 3.5% year-on-year in the three months to June.