Thailand’s household debt has risen by 3.6% in the second quarter of this year, reaching 16.07 trillion baht, equivalent to 90.7% of the country’s GDP. The increase in debt is mainly due to real estate purchases and personal consumption.
Key Takeaways
- Thailand’s household debt has risen to 90.7% of GDP in the second quarter of this year, posing a significant challenge for the government.
- Real estate purchases and personal consumption have contributed to the increase in household debt.
- Previous debt moratorium programmes have failed, and preventing debtors from resorting to informal borrowing is crucial to effectively addressing the issue.
This poses a significant challenge for the government, as non-performing loans during the COVID-19 pandemic have reached 370 billion baht, requiring debt refinancing. Previous debt moratorium programs have failed, as debtors have accumulated new debt due to insufficient earnings. The government must focus on preventing debtors from resorting to informal borrowing in order to effectively address the problem.
Household debt problems in Thailand differ from those in other countries in several ways. Credit cards and personal loans, which are consumer loans and do not generate income, play a larger role in Thailand, accounting for almost one-third of total household debt.
In contrast, housing loans make up the majority of household debt in other countries. Additionally, certain groups, such as farmers, self-employed individuals with volatile income, and government officials with low but stable income, have higher levels of household debt. These groups are unlikely to have sufficient financial cushion, such as emergency savings. Some debtors also rely on informal loans, for which data is often unavailable.
About 30% of individuals with credit card and personal loan debt have more than 4 cards or accounts and a credit limit that is 10-25 times their monthly income, which exceeds the regulatory requirement in some other countries.
This leads to debtors spending over half of their monthly income on debt service, with credit card and personal loans accounting for more than 50% of this. These types of loans have high interest rates and short payment periods, resulting in a high monthly debt burden and risk of default.
This is evident from the large number of loan accounts classified as non-performing loans, with over 60% being credit card and personal loans.
Thailand is facing a serious challenge as its household debt level has reached a record high of 90.7% of the country’s gross domestic product (GDP) in the third quarter of 2023, according to the Bank of Thailand. This means that the average Thai household owes more than nine-tenths of what the country produces in a year.
The main factors behind this alarming situation are the prolonged economic slowdown caused by the COVID-19 pandemic, the low-income growth, the high cost of living, and the easy access to credit. Many Thai households have resorted to borrowing money to cope with their daily expenses, medical bills, education fees, or business losses. However, this has also increased their financial burden and reduced their savings.
The high level of household debt poses a threat to the country’s economic recovery and financial stability. It limits the ability of consumers to spend and invest, which affects the domestic demand and growth. It also exposes the households and the financial institutions to the risk of default and insolvency, which could trigger a systemic crisis.
To address this issue, the government and the Bank of Thailand have implemented various measures, such as extending the debt moratorium program, providing soft loans and subsidies, promoting financial literacy and discipline, and strengthening the supervision and regulation of the credit market. However, these measures may not be enough to solve the root causes of the problem.
The government needs to boost the economic growth, create more jobs and income opportunities, reduce the inequality and poverty, and improve the social welfare system. The households need to manage their finances more prudently, reduce their unnecessary spending, increase their savings, and seek professional advice if they face difficulties in repaying their debts.
