How the debt problem has become a major concern in Thailand

Thailand’s household debt reached 16.2 trillion baht by the end of last year, with approximately one trillion baht classified as non-performing loans, posing a significant risk to the economy.

The Prime Minister Srettha Thavisin has reaffirmed the government’s commitment to addressing both formal and informal debt issues within the 4-year term of his administration. He emphasized that the progress made in the past two months reflects the sincere intention of his administration to offer assistance to individuals facing debt challenges.

Government’s Determination to Resolve Debt Problems

• Prime Minister Thavisin is committed to addressing both formal and informal debt issues within his 4-year term, targeting various debtor groups for assistance.
• Thailand’s household debt reached 16.2 trillion baht by the end of last year, with approximately one trillion baht classified as non-performing loans, posing a significant risk to the economy.
• Efforts to resolve debt issues include the registration of 140,000 informal debtors for government aid, mediation leading to the settlement of 12,000 cases, and measures to prevent the creation of new debt.
• The rise in household debt poses risks to the Thai economy, impacting sectors like housing and automobile sales.

Main Groups of Debtors

Debtors are categorized into four main groups, including those affected by the COVID-19 pandemic, individuals with regular incomes but burdened with debt, farmers without regular incomes, and debtors with non-performing loans. Plans to establish an asset management firm to resolve the non-performing loan problem are also in place.

Surapol Opasatien, CEO of the National Credit Bureau, expressed concern that many mortgage borrowers, who are mostly low and middle-income earners, have purchased houses for 3 million baht or less. These borrowers are now late by 1-2 repayments, which raises the risk that their mortgages may become non-performing loans (NPLs).

Household Debt Risks on the Rise

According to the National Credit Bureau, Thailand’s household debt reached 16.2 trillion baht in the previous year, equivalent to 91% of GDP. Of concern is the one trillion baht classified as non-performing loans, including 180 billion baht in housing loans. The automobile industry has also been affected, with car sales declining due to rising household debt and stricter loan criteria from commercial banks.

Without urgent government assistance in the form of debt refinancing, these loans could have a significant impact on the Thai economy in the long run. The National Credit Bureau reports that Thailand’s household debt stood at 16.2 trillion baht by the end of last year, accounting for 91% of GDP, which is considered a significant risk.

Of this total debt, approximately one trillion baht is classified as NPLs. This includes 180 billion baht in housing loans, 230 billion baht in vehicle loans, 260 billion baht in personal loans, and the remainder in credit card loans.

Efforts and Next Steps

Since December, around 140,000 informal debtors have registered for government aid. Mediation efforts have resulted in the settlement of 12,000 out of 21,000 cases, with the amount of informal debt reduced by 670 million baht.

Efforts by officials and the police have also led to the arrest of over 1,300 creditors resorting to violence for debt repayments. The Finance Ministry is working to secure low-interest funding for defaulting debtors, and measures are being put in place to prevent the creation of new debt.

The Thai government has taken significant steps to address the issue of household debt in the country. Here are some key measures and initiatives:

1. Directional Paper on Sustainable Solutions to Debt Overhang Problems:
   • In February 2023, the Bank of Thailand (BOT) published a Directional Paper that delved into Thailand’s household debt data.
   • The paper emphasized the need for comprehensive, fair, and appropriate solutions for both creditors and debtors.
   • The focus shifted from short-term measures (due to COVID-19) to longer-term debt-solving programs that suit debtors’ needs and affordability.
   • New targeted measures aim to offer sustainable solutions throughout debtors’ journeys, including:
     • Providing debt solutions for non-performing loans (NPLs).
     • Offering options for debtors with persistent debts to fully repay their loans.
     • Ensuring new debts are of good credit quality.
     • Increasing opportunities for borrowers with informal debt to access formal credit channels.
2. Responsible Lending and Debt Solutions:
   • Creditors are urged to lend responsibly and fairly throughout the debt journey:
     • Before applying for a loan or signing a contract, creditors must provide clear information and avoid encouraging excessive borrowing.
     • During the debtor phase, creditors should promote transparency in terms and conditions.
     • For debtors facing problems, creditors must offer solutions based on their debt affordability.
     • When debtors face legal actions or debt sales, creditors must notify them of their rights and conduct debt mediation.
3. National Initiative to Address Non-Formal Debts:
   • Thai Prime Minister Srettha Thavisin launched a comprehensive initiative to tackle non-formal debts as a national priority.
   • The goal is to free citizens from the burden of “debt slavery.”

The government is implementing measures to prevent the accumulation of new debt. Moreover, more than 1,300 creditors have been arrested for using violence to collect debt repayments.

These efforts demonstrate the Thai government’s commitment to managing household debt sustainably and fostering economic stability¹²³.