Table of Contents Hide
- Key Takeaways
- Non-performing loans (NPLs)
- Auto loans and debts from savings cooperatives
- Thailand’s Rising Household Debt Compared to Other Asean Countries
- Low wage growth
- Lax regulation and oversight of the financial sector
- Higher cost of leaving
- Risks for Thailand’s economic stability
Thailand is experiencing a steady increase in household debt, particularly in auto loans and debts from savings cooperatives, according to the secretary-general of the National Economic and Social Development Council.
- Thailand’s household debt is continuing to increase, with a 3.6% rise in the first quarter of 2023, highlighting the need for close monitoring of auto loans and debt from savings cooperatives.
- Non-performing loans (NPLs) in the country have reached 2.68%, with a concerning increase of 30.3% in NPLs from auto loans, indicating a growing risk of bad debt.
- Financial literacy and access to financial services for Thai people have decreased compared to 2020, emphasizing the importance of providing education on borrowing, finance, and debt management.
In the first quarter of 2023, household debt reached 15.9 trillion baht, a 3.6% increase from the previous quarter, or 90.6% of the GDP. Real estate purchases and personal loans were identified as the main contributors to this growth.
Non-performing loans (NPLs)
Another troubling aspect is the rise in non-performing loans (NPLs). Currently, the NPL rate in the country stands at 2.68%, which is a significant cause for concern. Of particular note is the 30.3% increase in NPLs from auto loans, indicating a growing risk of bad debt in this sector.
Despite efforts to improve financial literacy, there has been a decline in financial literacy and access to financial services, exacerbating the household debt issue.
Auto loans and debts from savings cooperatives
One of the main contributing factors to this increase in debt is real estate purchases and personal loans. These types of loans have been identified as the primary drivers behind the growing debt burden on Thai households.
The increase in household debt in Thailand is a cause for concern, particularly when it comes to auto loans and debts from savings cooperatives. The first quarter of 2023 saw a 3.6% rise in household debt, reaching a total of 15.9 trillion baht, which is equivalent to 90.6% of the country’s GDP.
Furthermore, there has been a decline in financial literacy and access to financial services among the Thai population. Compared to 2020, people have become less knowledgeable about borrowing, finance, and debt management. This emphasizes the urgent need for educational initiatives to address these issues and ensure individuals make informed financial decisions.
Despite these challenges, there have been positive developments in the employment sector. Non-agricultural industries, especially the hospitality industry, have experienced growth, leading to increased job opportunities. However, the agricultural sector has faced challenges due to drought conditions, resulting in a contraction in employment within that sector. Nonetheless, the overall unemployment rate remains relatively low.
Thailand’s Rising Household Debt Compared to Other Asean Countries
Thailand is facing a serious problem of high household debt, which has reached 90 percent of GDP in the fourth quarter of 2021, according to the Bank of Thailand. This is the highest level among Asean countries, followed by Malaysia with 87 percent of GDP. The Covid-19 pandemic has worsened the situation, as many households have lost income and resorted to borrowing to cope with the economic downturn. However, household debt was already a structural issue in Thailand before the pandemic, as it had risen from 68 percent of GDP in 2012 to 79 percent in 2019.
There are several factors that have contributed to the increase in household debt in Thailand over the years.
Low wage growth
One of them is the low wage growth relative to the export boom that Thailand experienced in the mid-2010s. Despite running large current account surpluses and exporting manufactured goods and services to foreign markets, Thailand did not translate these gains into higher wages for its workers, especially in the factory and tourism sectors. As a result, many households had to rely on various forms of consumer credit to maintain their living standards and consumption.
Lax regulation and oversight of the financial sector
Another factor is the lax regulation and oversight of the financial sector, which has enabled easy access to credit for households, especially from non-bank sources such as cooperatives, pawnshops, and informal lenders. These sources often charge high interest rates and fees, and do not have adequate consumer protection measures. Moreover, some households have borrowed excessively to invest in speculative activities, such as real estate and stocks, hoping to make quick profits.
Higher cost of leaving
A third factor is the high cost of living, especially for energy and housing, which has put pressure on household budgets. Thailand has faced rising gas and electricity prices in recent years, partly due to its dependence on imported fossil fuels and its lack of renewable energy sources. Housing prices have also soared, driven by hot money inflows and limited supply of affordable housing units. Many households have taken out mortgages or loans to buy or rent houses, adding to their debt burden.
Risks for Thailand’s economic stability
The high level of household debt poses significant risks for Thailand’s economic stability and social welfare. It reduces household consumption and savings, which are important drivers of economic growth. It also increases household vulnerability to income shocks and interest rate changes, which could lead to defaults and non-performing loans. It also undermines household well-being and mental health, as many households struggle to repay their debts and face financial stress.
To address this problem, Thailand needs to implement comprehensive and coordinated policies that aim to reduce household debt and enhance household resilience. Some possible measures include:
- Promoting wage growth and income distribution by increasing the minimum wage, strengthening labor rights and collective bargaining, and enhancing social protection and safety nets.
- Improving financial literacy and regulation by educating households about responsible borrowing and saving, enforcing prudential standards and consumer protection laws, and cracking down on predatory lending practices.
- Supporting debt restructuring and relief by providing low-interest loans, debt moratoriums, or debt write-offs for households in financial distress, especially those affected by the pandemic.
- Reducing the cost of living by subsidizing energy and housing costs for low-income households, promoting renewable energy sources and energy efficiency, and increasing the supply of affordable housing units.
By taking these steps, Thailand can lower its household debt ratio and improve its economic and social prospects in the post-pandemic era.
Economic Implications and Future Outlook
The increasing household debt in Thailand has several economic implications that need to be closely monitored. Firstly, the rising debt burden puts a strain on household consumption, as more income goes towards debt repayments instead of discretionary spending. This can impact the overall demand for goods and services, potentially affecting economic growth.
Secondly, the high level of non-performing loans, particularly from auto loans, raises concerns about the stability of the financial sector. If the number of defaults continues to rise, it could lead to a ripple effect on banks and other lending institutions, potentially posing systemic risks to the economy.
Moreover, the decline in financial literacy and access to financial services exacerbates the debt problem. It becomes crucial to provide education and resources to help individuals make informed financial decisions and manage their debts effectively. By promoting financial literacy, the Thai government can empower its citizens to navigate the complex landscape of borrowing and finance.
Looking ahead, it is essential for policymakers to implement measures that address the root causes of the increasing household debt. This includes addressing the issue of low wage growth, creating better regulations and oversight of the financial sector, and tackling the high cost of living in the country. By focusing on these areas, Thailand can create a more sustainable and resilient economy for its citizens.
Furthermore, efforts should be made to diversify the economy and reduce its reliance on specific sectors, such as manufacturing and tourism. This can help alleviate the pressure on household incomes and decrease the need for excessive borrowing.