According to the University of the Thai Chamber of Commerce (UTCC), Thailand is currently reaching the highest rate of household debts in 8 years, with debts averaging around 119,000 baht per family.

About 60 per cent of debts among working people is believed to be borrowed from loan sharks for general payments, as well as to buy house or car.

Household debt rose to 10.8 trillion baht or 81.1% of GDP in last year’s third quarter, up from 10.7 trillion baht or 80.6% in the second quarter, according to Bank of Thailand data.

The latest survey by UTCC was conducted from 1,212 working people who earn less than 15,000 baht a month during April 18-23.

Of all the people asked, 95.9% were in debt incurred mainly by daily expenses, buying vehicles and household purchases.

The average debt per family is estimated at 119,061 baht, the highest level in eight years, up from 117,840 baht last year and 87,399 baht in 2009.

Gross non-performing loans rose to 2.55% last year, with an outstanding value of 338 billion baht, up from 2.15% recorded in 2014, worth 277 billion baht, according to the central bank’s data.

Unorganized loans represent 60.6% of debts, an increase from 59.6% last year and 48.5% in 2009.

The survey also found that working people want the government to increase minimum wage from 300 baht a day to 356 baht, cut contributions to the social security fund and stimulate economic growth.

Household debt tripled since 2005

In 2005, household debt amounted to 3.4 trillion baht. Today, the amount has more than tripled. Thai households now owe 10.8 trillion baht to financial institutions.

From 2005-14, household debt rose by 13.4% per year, almost double the nominal GDP growth rate.

And even more worrying, loan sharks are getting the lion share of households debt in Thailand : around 60%.

Unorganised loans represent 60.6% of debts in Thailand, mostly to loan sharks charging hefty interest rates.

The ratio of household debt to nominal GDP jumped to 81% from 45% during that period.

Indonesia and the Philippines have negligible household debt — at 9.9% and 7.1% of GDP, respectively. But Malaysia’s figure of 85% is surprisingly close to Thailand’s.

So is higher income associated with higher household debt? Not necessarily. Household debt in wealthy Singapore is just 60% of GDP.

The composition of household debt in Thailand is worrying

The composition of household debt in Thailand and Malaysia further amplifies the concern. In many developed countries, three-fourths of household debt is in the form of mortgages (see graphic).

In Thailand and Malaysia, half is consumption-related with credit-card, personal loans and auto loans.  The assets underlying consumption-related loans depreciate in value quickly. In contrast, house prices usually go up, so a house is considered an investment.

So one type of loan makes borrowers poorer, while another type makes them richer. Unfortunately, Thai and Malaysian consumers are holding a lot of the former.

Thai loan sharks’ deep pockets

Sources indicate that many who resort to borrowing money from loan sharks do so because they lack access to formal sources of funds : out of 38 million people between the ages of 20 and 59, 18 million are presumed unable to access loans from recognized lenders (banks mostly).

Some people resort to loan sharks to supplement their income when it is insufficient to support their families, but the interest rates charged by loan sharks as “extortionate”.

Loan sharks main target are desperate people, providing they are willing to sign away what amounts to all their earning power. Loan terms are always expressed in percentage per week or month, but usually amount to well over 100% annual interest.

Some of the interest rates reported by sources are 10 percent per month, and according to the Ministry of Justice’s permanent secretary, cited by the Bangkok Post, some loan sharks may charge up to 3 percent interest per day, the equivalent of 1,095 percent a year.