Thailand’s household debt set to decline faster than expected
The Bank of Thailand is optimistic as the nation’s household debt-to-GDP ratio is projected to fall more swiftly than previously anticipated. This promising outlook is driven by ongoing debt reduction strategies and the introduction of a new debt relief programme.
According to the central bank’s latest financial stability report for 2024, there’s a noticeable drop in the household debt-to-GDP ratio, a testament to consistent debt trimming efforts. Consumer loan growth, particularly in auto loans and credit card debt, is slowing. However, car title and co-operative loans continue to provide liquidity to households.
Thailand’s household debt-to-GDP ratio fell to 89.6% in the second quarter of 2024, down from 91.3% at the end of 2023, though it still exceeds many regional counterparts. For context, the first quarter of 2023 saw Thailand’s ratio at 90.7%, significantly higher than Malaysia at 66.5%, China at 62%, Singapore at 48.4%, and just below South Korea at 101.5%.
Part of the drive to reduce debt stems from the You Fight, We Help initiative, launched last month. This initiative aims to ease borrowers’ financial burdens by reducing monthly payments and mortgage interest, reported Bangkok Post.
The central bank remains vigilant about the impact of debt reduction on household liquidity. If debt falls too quickly amidst stagnant income growth, it might cause liquidity strains, hampering domestic consumption and broader economic activity.
High household debt levels, alongside sluggish economic growth, have dampened households and SMEs’ ability to repay, heightening financial vulnerabilities. The central bank has raised concerns about the declining asset quality among these at-risk borrowers.
Alarmingly, local SMEs with tenuous financial standings are burgeoning, with 28% of small and 74% of micro SMEs showing interest coverage ratios below one. Additionally, some larger corporations are slowing their new debt issuance, encompassing loans and bonds, due to already high debt levels, despite maintaining solid repayment capabilities.
In the second quarter of last year, the business sector’s debt-to-GDP ratio was 86.5%, down from 89.9% at the pandemic’s height. The report suggests potential tightening of financial conditions within Thailand’s system, which the central bank is keeping a close eye on.
Despite these challenges, Thailand’s financial system remains sound, with banks, co-operatives, and insurance companies operating robustly. Fortuitously, there are no signs of an emerging asset price bubble, offering a stable foundation for future growth.
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