Household debt in Thailand soars to 86.9% of GDP, dampening consumer spending
Thailand’s mounting household debt is raising concerns, as it continues to hinder consumer spending, affecting various industries and impeding economic growth. The latest data from the National Economic and Social Development Council shows debt in the nation reached 15.1 trillion baht in the fourth quarter of 2022, a 3.5% increase year on year, and accounting for 86.9% of GDP. Debt levels remain alarmingly high, as the major factors behind rising household debt are real estate purchases and personal loans.
Despite a slow rate of decline, it is anticipated to take a considerable time for household debt to reach the Bank of Thailand’s target level of 80% of GDP. The central bank warned that debt levels surpassing 80% of GDP pose a risk to the country’s financial stability and long-term economic growth. It is predicted that without implementing debt restructuring measures, household debt is expected to tally 84% of GDP by 2027.
According to Kasikorn Research Center (K-Research), Thailand’s household debt-to-GDP ratio is expected to decline to between 85.5 to 86% in 2023, due to GDP expansion and retail loan repayments. This includes repayments on credit cards and mortgages during seasonal periods. However, the ratio remains high at 86.9% as GDP growth aligns with the nation’s economic recovery. Over the long term, K-Research expects retail loans in the Thai banking system to grow at a slowed pace of 3 to 3.5% compared to the previous average of 6.0% over the past five years.
Krungsri Research, a unit under the Bank of Ayudhya, warns that rising interest rates and swelling household debt may exert pressure on household consumption, especially for low-income earners. Vulnerable households, representing 85% of total households, face a greater risk for debt repayment with higher interest rates. As a result, the debt repayment capability of these households is expected to last only three more years, reported Bangkok Post.
Persistent high debt levels can lead to increasing numbers of non-performing loans (NPLs), particularly in the automotive sector, resulting in an increase in car seizures due to reduced purchasing power.
In response to increased household debt, the Bank of Thailand is drafting responsible lending guidelines to improve loan quality within the Thai financial system and to control NPLs, particularly in the area of new loan offerings. The guidelines will require creditors to consider their client’s ability to repay debt and the affordability of other essential living expenses.
Despite the concerning figures, the Director-General of the Fiscal Policy Office, Pornchai Thiraveja, believes Thailand’s high household debt is not expected to significantly impact the economy. Mr Thiraveja highlights that household debt has mainly been driven by real estate purchases and durable goods investment to generate future income. As private consumption gains and the consumer confidence index rises, debt appears to have a limited impact on economic expansion.
