Drowning in debt
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Drowning in debt

Personal loans are expected to stay at a high level for years to come, posing a risk to consumption, long-term economic growth and financial stability

Thailand's household debt is estimated to total 84% of GDP by 2027, according to the Bank of Thailand.
Thailand's household debt is estimated to total 84% of GDP by 2027, according to the Bank of Thailand.

Household debt has long been a concern for Thailand, impeding consumer spending and hindering economic growth.

According to data provided by the National Economic and Social Development Council, Thailand's household debt reached 15.1 trillion baht in the fourth quarter of 2022, marking a 3.5% increase year-on-year.

This debt accounted for 86.9% of the country's GDP.

The rise in household debt can be primarily attributed to the purchase of real estate and personal loans, said the planning unit.

As of the end of 2021, total household debt stood at 14.6 trillion baht, equivalent to 90.2% of GDP.

The debt-to-GDP ratio for 2022 remained high at 86.9%.

Despite the decrease, the household debt ratio remains relatively high and the rate of decline is slow, suggesting it will take considerable time to reach the Bank of Thailand's target level of 80%.

The central bank has identified a debt level exceeding 80% of GDP as potentially detrimental to long-term economic growth and a risk to the country's financial stability.

Considering the current economic climate, inflation rates and interest rates, the Bank of Thailand predicts that without implementing debt restructuring measures, household debt is expected to tally 84% of GDP by 2027.

Rising interest rates and debt are expected to pressure household consumption, particularly among vulnerable low-income earners.


Kasikorn Research Center (K-Research) expects Thailand's household debt-to-GDP ratio to decline to 85.5-86% in 2023 because of Thai GDP expansion and retail loan repayments, especially credit cards and mortgages based on seasonal factors, said head of research Kanjana Chockpisansin.

For example, credit cardholders spent a large amount in the fourth quarter of last year because of seasonal factors, and repaid a large amount in the first quarter of this year.

In addition, mortgage borrowers might have received extra income or bonuses in the fourth quarter of last year, then paid off loans in the first quarter of this year, Ms Kanjana said.

The country's household debt increased significantly from 59.3% of GDP in 2010 to 89.7% in 2020, peaking at 90.2% in 2021, which was mainly attributed to the impact of the pandemic.

For the first quarter of this year, the ratio remained at 86.9% as GDP grew in line with the Thai economic recovery.

The Bank of Thailand wants to reduce the household debt-to-GDP ratio to a ceiling of 80%, in line with the Bank for International Settlements standard.

Household debt has been steady, said Thanyalak Vacharachaisurapol, deputy managing director of K-Research.

The forecast for a falling ratio is partially attributed to rising interest rates, which weaken demand for new consumer loans.

K-Research projects retail loans in the Thai banking system will grow 3-3.5% this year, down from average growth of 6.0% over the past five years, Ms Thanyalak said.


Krungsri Research, a unit under Bank of Ayudhya, expects rising interest rates and swelling household debt to pressure household consumption, particularly for low-income earners.

Vulnerable households, meaning those with a monthly income below 50,000 baht shouldering expenses of around 30% of total income and deposits, will have higher risk for debt repayment with rising interest rates.

This segment represents 85% of total households, according to the research house's survey.

"Given the tight liquidity among vulnerable households, we expect they can pay off debt for only three more years," said Krungsri Research.

Higher-income households, defined as a monthly income above 50,000 baht with expenses of 6-17% of total income and deposits, will have a lower debt repayment risk, assuming higher interest rates.

The debt repayment capability of this segment could last 5-10 years, said the research house. This group accounts for 15% of total households.

Sakkapop Panyanukul, the central bank's director of the economic and policy department, recently said non-performing loans (NPLs) in the banking sector have continued to decline, but special mention loans (SMs) are still increasing, though the growth rate has slowed.

An SM is defined as a loan overdue for more than 30 days, but less than 90 days. An NPL is overdue for more than 90 days.

According to Bank of Thailand data, commercial bank NPLs tallied 494 billion baht in the first quarter of this year, declining from 495 billion and 498 billion in the fourth and third quarters of last year, respectively.

SMs tallied 1.044 trillion baht in the first quarter of this year, compared with 1.049 trillion and 1.041 trillion in the fourth and third quarters of last year, respectively.

Several advertisements for speedy loans are seen alongside the Phahon Yothin Road highway, inbound to Bangkok from Saraburi province. Pattanapong Hirunard


High household debt is likely to lead to more NPLs in the automotive sector, leading to more car seizures as purchasing power slips amid the high cost of living, said the Federation of Thai Industries (FTI).

Auto and housing loan problems are evident among Gen X and Gen Y customers, but they managed to own the assets after receiving help from the government, notably the extension of payback periods during the pandemic.

"When the assistance measures end, people will begin to live tougher lives when various types of debts keep rolling in," said Kriengkrai Thiennukul, chairman of the FTI.

"These problems exist because the Thai economy has yet to fully recover from the pandemic."

Used car dealers will bear the brunt as financial institutions will apply stricter criteria for loan applicants, said Mr Kriengkrai.

He said concern over auto loan NPLs should not affect car manufacturing in Thailand in the short term because many companies still sell and export cars.

Over the long term, the automotive industry could be disrupted by new technologies, especially those involving electric vehicles, which will replace internal combustion engine cars, said Mr Kriengkrai.

Pinyo Tanawatcharaporn, owner of the used car company Yo Ratchada and former president of the Association of Used Car Dealers, is aware of people's decreasing purchasing power, caused by various factors ranging from the impact of Covid-19 to expensive electricity bills.

The dip in purchasing power worsens household debt, especially unsettled debt in the automotive sector.

However, Mr Pinyo disagrees with some media reports that predict up to 1 million cars will be repossessed because of NPLs, as only 200,000-300,000 cars were seized each year when the economy was sluggish.

He projects only 300,000 new and used cars will be repossessed in Thailand this year.

"Financial institutions are experts at granting loans. They will not let NPLs exceed 10% of total loans, which is the normal rate," said Mr Pinyo.

He said the impact of the government's new law to regulate auto hire-purchase and leasing of cars and motorcycles should be seen next year.

Jointly drafted by the Bank of Thailand and the Fiscal Policy Office, the law is scheduled to take effect on Nov 1 this year.

The law aims to maintain the country's financial stability by keeping household debt at an appropriate level, preventing consumers from becoming overburdened.

But if financial institutions are too cautious in granting loans, or stop approving loan requests, their business will suffer, said Mr Pinyo.


Chotechuang Soorangura, vice- president of the Thai Travel Agents Association, said household debt will affect the tourism industry, particularly outbound tours, as this segment has a limited budget and may consider pausing their trip plans or travelling within the country instead.

Tourists with high spending power will not feel the impact of a slower economy, he said.

Mr Chotechuang said most Thai travellers who went abroad before the pandemic are not planning outbound trips because of limited travel budgets. Some of them cannot afford luxury or expensive packages, he said.

The number of outbound travellers this year is expected to recover to 50% of the 11.2 million recorded in 2019.

Mr Chotechuang said the financial burden from high household debt stems from the three-year pandemic and a sluggish economy, which will require more time to fully recover.

While travellers on budget tours did not spend as much per person as the premium segment, the tour industry still felt a severe impact when they stopped because this segment contributed a huge volume, generating income for many tour operators and those in the supply chain, he said.

For instance, airlines need a massive number of passengers to efficiently operate each flight, while hotels require a healthy occupancy rate to fill rooms.

Regarding outbound tourism, Mr Chotechuang estimated that budget travellers would start to recover by next year when travel costs, especially airfares, decrease, match average prices in 2019.

He said high airfares remained the most crucial obstacle for budget travellers, as accommodation and food have a greater range of prices.

For example, flights between Japan and Thailand this month cost an average of more than 35,000 baht, compared with 18,000-20,000 baht in 2019.


Artitaya Kasemlawan, head of the residential sales project at property consultant CBRE Thailand, said the residential market will be significantly affected by high household debt because the majority of buyers still rely on mortgages to purchase homes.

"If high household debt persists and NPLs increase, buyers will face difficulties in obtaining loans," she said.

"Typically the bank rejection rate for this group is higher than for luxury segments."

Based on recent discussions with some financial institutions, the rejection rate for the luxury group was 10-20%, as some individuals apply for loans to purchase very expensive homes, said Ms Artitaya.

For the mass market, the rejection rate has soared to 30-50%. She said when banks see vehicle repossessions, they will become more cautious and reject more loan applications.

"We can't celebrate too early when presales are good," said Ms Artitaya.

"The true measure of success is when customers have completed the property transfer."

Thongchai Busrapan, co-chief executive of Noble Development Plc, said high household debt will have a minimal impact on the company as the majority of its target customers are foreigners.

"High household debt has been a longstanding issue, in conjunction with the Thai economy," he said.

"If the economy improves, these problems will decrease. It will largely depend on how quickly a new government is formed."

Korn Narongdej, chief executive of developer Raimon Land Plc, said high household debt is not a concern for the company as its target buyers are mainly in high-end segments that are less affected by this issue.

"Only 3-4% of our customers were rejected for bank mortgages, primarily because some of them were applying for a second mortgage," said Mr Korn.


The Bank of Thailand is drafting responsible lending guidelines to improve the loan quality in the Thai financial system and to control NPLs, particularly new loan offerings.

According to the guidelines, creditors are required to consider their client's ability to repay debt and their ability to afford other essential living expenses.

Surapol Opasatien, chief executive of the National Credit Bureau (NCB), said SM loans for NCB members totalled 600 billion baht in the first quarter of this year, with around 190 billion attributed to auto loans.

This segment is the highest SM loan amount among consumer loan products.

SM auto loans have continued to increase as a result of a rising cost of living and borrowers' weakening debt payment ability, he said.

Of roughly 1 million auto leasing loan contracts, some 508,827 are classified as SMs and the remainder are NPLs, Mr Surapol said.

"SM auto loans could become NPLs with an uneven economic recovery and tight liquidity among borrowers," he said.

"If borrowers use their cars for their livelihood, the impact would intensify."


Pornchai Thiraveja, director-general of the Fiscal Policy Office, predicted Thailand's high household debt would not have a significant impact on the economy.

According to Mr Pornchai, household debt stemmed largely from the purchase of real estate and durable goods, such as cars and motorcycles, in order to create income in the future, making up 35.1% and 12% of the total, respectively.

Daily expenses account for 17.9% of household debt.

Secured loans, meaning loans backed by an asset such as a car or a house, account for 47.1% of the total, which shows many households incur debt for the purchase of property, not consumption, he said.

In the first quarter of 2023, personal debt NPLs declined to 2.67%, reflecting an improvement in household debt serviceability.

Specialised financial institutions and commercial banks had combined NPLs of 778 billion baht.

The trend for household debt is improving, in line with the recovery of the Thai economy following the pandemic, said Mr Pornchai, which corresponds with agency survey results finding improved income from higher employment.

In addition, private consumption gained as the consumer confidence index rose for a 12th consecutive month in May, indicating household debt is not having a significant impact on economic expansion, he said.


Somchai Lertsutiwong, chief executive of telecom company Advanced Info Service, said one of the best ways to tackle chronic household debt would be to improve people's quality of life, which should be a critical agenda item for the new government to drive more sustainable economic growth.

He said the current tourism-driven economic recovery is generating revenue streams for other sectors, though the rate of foreign arrivals is lower than in 2019.

Clarity over who will form the new government will help to establish political stability, said Mr Somchai.

He said whether the Move Forward Party leads the new government or not, the telecom sector, dominated by mobile service revenue streams, will not be affected.

Mobile internet is a necessary commodity for people's daily lives and usage has been soaring every year, with double-digit growth, said Mr Somchai.

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