Thailand tackles household debt crisis, slow economic recovery

The Economic Cabinet directed the Finance Ministry and the Bank of Thailand (BoT) to quickly address household debt issues, focusing on bad debts in housing, cars, motorcycles, credit cards, and student loans, amid an economy still showing sluggish recovery signs.

Finance Minister Pichai Chunhavajira, after the economic ministers’ meeting chaired by Prime Minister Srettha Thavisin, stated that the premier instructed all related agencies to hasten efforts to tackle the economic downturn due to the lack of clear recovery signals.

The primary concern is centred on the household sector’s bad debt and small and medium-sized enterprises (SMEs), with household debt being particularly critical.

Household debt currently stands at 13.6 trillion baht, equivalent to 90% of GDP, with approximately 1 trillion baht classified as bad debt. This figure is expected to rise as more debts are at risk of becoming bad (special mention or SM loans), with half of this debt related to housing and cars, and the remainder to credit card debt.

SM loans are defined as being overdue by 30 to 90 days, while non-performing loans (NPLs) are where the borrower has defaulted and not made monthly principal and interest repayments for over 90 days.

To address bad debt in the housing sector, the Government Housing Bank has been instructed to extend the home loan repayment period up to a maximum borrower age of 85. Specifically, the scheme aims to extend the mortgage instalment plan for civil servants to age 85 and individuals to age 80, up from the current benchmark of 60 to 70, said Pichai.

Extension period

“The extension of mortgage tenure will decrease the instalment amount.”

Extending the home loan repayment period is expected to alleviate homebuyers’ burden amid high living costs and expenses.

Pichai added that the government will also urge commercial banks to assist borrowers struggling with repayments by extending the debt period and reducing principal payments.

For bad debts related to repossessed cars and motorcycles, provisions for bad debts will be made, and the total debt amount will be reported at the next meeting.

Regarding credit card debt, the system currently has 24 million credit cards, with 1.4 million in debt, expected to rise to 2 to 3 million cards.

To tackle this issue, BoT will coordinate with credit card companies to reduce the minimum payment from the current 8% to 5%, with plans for further adjustments.

Pichai noted that the measures to address bad debt will be implemented swiftly, as the government aims to reduce, extend, and manage debt, aiding the economy’s gradual recovery, reported Bangkok Post.