Thailand’s debt drive: Putting the brakes on cars and homes

The financial woes of Thailand have taken centre stage as crippling debt levels put the brakes on car sales and curb the housing market, particularly among low-income households. With banks wary of non-performing loans (NPLs), many hopeful borrowers are seeing their applications for mortgages and car loans hit the skids. In response, the government is steering new initiatives to tackle this economic roadblock.

The Finance Ministry, teaming up with the Bank of Thailand, the National Economic and Social Development Council, and the Thai Bankers’ Association, is revving up a plan to ease the debt load on beleaguered individual borrowers and SMEs.

The strategy? A clever debt restructuring scheme that puts a lid on interest payments while borrowers focus on repaying the principal. Meet the requirements, and the suspended interest might even get waved away as an added incentive to keep repayments on track, said Pornchai Thiraveja, the Fiscal Policy Office Director-General.

“This programme aims to support small borrowers who intend to reduce their debt and are expected to resume normal repayments once their incomes recover,”

The programme hopes to fix structural flaws by linking government and bank data, offering a clearer picture of debt loads and repayment capabilities. While finer details are still in the pipeline, the initiative is expected to cover borrowers with loan agreements signed before January 1, 2024, who’ve faced financial turbulence as of October 31, 2024.

Household debt currently stands at a hefty 89.6% of GDP, down slightly from earlier figures, prompting government action. Previous efforts included low-interest loans and debt suspensions for some state institution clients. Thitima Chucherd from SCB EIC noted that the interest suspension helps vulnerable borrowers tackle their debt head-on.

Debt relief

Targeting those grappling with mortgages, car, and small business loans, the new scheme draws input from crucial players in both private and public sectors, with plans to roll out early next year. By providing debt relief, the programme aims to cut down on repossessions, allowing borrowers to keep using their vehicles for work, said Suphan Mongkolsuthree, ex-chairman of the Federation of Thai Industries.

“Banks remain cautious due to NPLs. New solutions are needed for both lenders and borrowers.”

This debt burden has spilt over into the manufacturing domain, depressing car sales and scaling back 2024 car production targets. Issara Boonyoung from the Thai Chamber of Commerce points out that the temporary relief could help prevent vehicle repossessions, keeping people on the road for work.

While these measures won’t directly boost new home buying, they aim to cool economic pressures caused by mounting debt. SMEs particularly stand to benefit from the interest payment pause, helping them stay afloat and stave off layoffs, said Jesada Techahusdin, an analyst at Maybank Securities.

“While the new debt relief measure could reduce sector NPLs, measures to increase household income are necessary for long-term solutions,”

This initiative paves the way for deflating Thailand’s towering debt problem, with more strategies likely to follow to boost household incomes. The hope? A financial turnaround hitting top gear.