The Bank of Thailand expects the country's household debt-to-GDP ratio to decline faster than previously assessed, driven by debt deleveraging efforts and the recent debt relief scheme.
According to the central bank's financial stability report for 2024, the household debt-to-GDP ratio has been decreasing because of ongoing debt deleveraging, resulting in slower growth across all consumer loan products, particularly auto loans and credit cards.
However, car title loans and co-operative loans have continued to grow, helping to provide liquidity to the household sector.
Although Thailand's household debt-to-GDP ratio decreased to 89.6% in the second quarter of 2024, down from 91.3% at the end of 2023, it remains high compared with other countries in the region.
In the first quarter of 2023, Thailand's ratio was 90.7%, compared with 66.5% in Malaysia, 62% in China, 48.4% in Singapore and 101.5% in South Korea.
According to the report, the debt relief initiative "You Fight, We Help" launched last month is expected to support debt deleveraging in the household sector.
In particular, a reduction in monthly debt payments and interest on mortgage loans will help borrowers reduce their debt burden more quickly, according to the report.
The central bank will continue to monitor the effects of debt reduction, especially its impact on household liquidity.
If the pace of debt reduction accelerates too quickly amid slower income growth, it could lead to liquidity shortages in the household sector, negatively affecting domestic consumption and broader economic activity.
High levels of household debt coupled with slower economic growth has weakened the ability of both households and small and medium-sized enterprises (SMEs) to repay debts, increasing their vulnerability.
The asset quality of these vulnerable borrowers has also deteriorated, noted the regulator.
"The number of local SMEs with weaker financial status continues to rise. Small and micro SMEs with interest coverage ratios of below one represent 28% and 74%, respectively," said the report.
Meanwhile, some large local corporations are slowing their issuance of new debt due to high debt levels, covering both loans and bonds, although their debt repayment capacity remains strong.
As of the second quarter of last year, the business sector's debt-to-GDP ratio was 86.5%, down from 89.9% during the pandemic.
Financial conditions in the Thai system are likely to tighten, with the central bank monitoring the situation, noted the report.
The report said the country's financial system and institutions, including banks, co-operatives, and insurance companies, remain strong and functional, while there are no signs of an asset price bubble.
