Thailand’s household debt growth slows amid stricter loan criteria

Household debt growth in Thailand decelerated in the first quarter of this year, partly due to stricter loan criteria imposed by financial institutions, the National Economic and Social Development Council (NESDC) announced.

The NESDC Secretary-General, Danucha Pichayanan, reported that household debt reached 16.3 trillion baht in the first quarter of 2024, marking a 2.5% increase, which is a slowdown from the 3% growth recorded in the previous quarter. This debt level equals 90.8% of GDP, down from 91.4% in the preceding quarter.

The slowdown in household debt growth was observed across nearly all types of loans and is attributed to both the high level of existing household debt and declining credit quality, prompting financial institutions to tighten their loan approval processes.

The quality of household loans has been deteriorating. Non-performing loans (NPLs) for consumer credit at commercial banks reached 163 billion baht, representing 2.99% of total loans, up from 2.88% in the previous quarter. This rise marks the fifth consecutive quarter of increasing NPLs, said Danucha.

“There are two critical issues to address. Firstly, an urgent need to restructure debt for credit cardholders struggling to make payments after the Bank of Thailand increased the minimum payment from 5% to 8% from the January 2024 billing cycle.

“This adjustment has caused some borrowers to face repayment challenges. Secondly, diverse forms of informal lending, particularly through social media channels, along with easy access to loans, may lead to excessive debt accumulation.”

High interest rates associated with informal lending, especially among younger people, pose a significant risk of unmanageable debt.

NESDC report

In related news, the NESDC reported a slight increase in the unemployment rate to 1.07% in the first quarter of this year, representing 430,000 people.

Future labour market trends highlight the need for workers to adapt their skills to meet evolving demands. The World Economic Forum predicts that by 2027, over 42% of jobs in the business sector will be automated. A survey conducted by Microsoft Thailand in collaboration with LinkedIn revealed that over 74% of Thai executives are hesitant to hire employees who lack AI skills.

The liquidity shortage among small and medium-sized enterprises (SMEs) and escalating economic risks are also impacting employment. SMEs, which represent a large portion of the workforce, are grappling with liquidity problems, with NPLs reaching 7.2% of total loans in the fourth quarter of last year, nearly doubling from the same period a year earlier.

Additionally, the cost index for micro and medium-sized businesses has increased, potentially leading to job cuts.

Another significant issue outlined by the state planning unit is the impact of recent floods on agricultural production and farmers’ incomes. Recent floods damaged 308,238 rai of farmland. From mid-July to September, 60% to 80% of Thailand is expected to experience thunderstorms, posing a risk to agricultural production.

This weather forecast could negatively impact farmers’ income, increase production costs, and affect their ability to repay debts, the NESDC stated, reported Bangkok Post.