Household debt up 5.8%

Household debt up 5.8%

Average repayment also rose, says UTCC

Debt consolidation services have become a successful niche business but there is no stopping the increase in consumer spending. (File photo)
Debt consolidation services have become a successful niche business but there is no stopping the increase in consumer spending. (File photo)

Household debt has reached its highest level since 2009, rising 5.8% in 2018 to 316,623 baht per household, a phenomenon driven by underground debt, which makes up more than a third of total household debt, says the University of the Thai Chamber of Commerce (UTCC).

Some 64.7% of the debt is formal debt and 35.3% is underground debt, according to a UTCC study.

Most of the debt is spent on general spending, followed by paying off previous loans, spending on education or professional development, paying off credit cards, buying a home, enhancing businesses, buying a new car, farming and gambling, especially on football.

The factors that contributed to the increase in average household debt were partly because of the slowdown in the economy, especially for those earning 30,000 baht or less per household per month, low prices of agricultural products such as rubber and oil palm, and high living costs.

In addition, the government has subsidised loans from financial institutions to support villagers and solve the problem of underground debt, which usually has a higher interest rate.

Thanawat Phonvichai, director of the Center for Economic and Business Forecasting at the UTCC, said the proportion of underground debt in 2018 was higher (35.3%) than in 2017 (26.4%).

He said as more people sought loans from financial institutions, interest rates in the underground sector were slashed to as low as 10% per month, down from 20-30% per month the previous year.

In his view the increase in the informal loan proportion is not a cause for concern, as the average repayment of debt also increased.

Monthly household debt repayments averaged 15,925 baht, with those for formal debt tallying 17,118 baht per month, an increase of 22%, while those for underground debt were 5,193 baht per month, a decrease of 5.79%.

"The government is on the right track in fighting loan sharks by encouraging people to borrow from financial institutions, in particular groups that don't have collateral as a guarantee," Mr Thanawat said.

He said even as average household debt increased, the debt ratio to GDP shows it is not a reason to be worried like in the past.

"However, underground debts increased as average monthly repayments decreased because the interest rate for such debts dropped significantly," Mr Thanawat said.

He said the survey found a large number of people have turned to Ponzi schemes rather than banks to scrounge up capital, as there is often a lower cost than applying for a loan at a financial institution.

This source of underground debt is riskier because if one person cheats, the scheme is toppled, said Mr Thanawat. But many people still turn to Ponzi schemes in the hope there will not be cheating, preferring friends and relatives to make it safer.

He said most survey respondents want the government to resolve the debt problem through economic stimulus that would increase employment and incomes. In addition, they want consumer prices controlled to stop the rise in living costs, and interest rates to be lowered.

"In the past year, 86.8% of respondents had insufficient income to repay loans because of higher living costs," Mr Thanawat said. "Some 13.2% of respondents never defaulted on repayment, while 47.3% do not intend to borrow money in the next year and 52.7% plan to borrow.

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