Thailand’s family debt stays worryingly excessive at virtually 91 per cent of gross home product (GDP) as of the third quarter of final yr, due largely to a debt overhang since COVID-19 hit the nation in 2020. Company debt was virtually as excessive at 87.4 per cent of GDP in the identical interval, given the rising variety of companies making low revenue.
Piti Disyatat, secretary of the central financial institution’s Financial Coverage Committee (MPC), argues {that a} coverage price lower is not going to assist a lot as round 40 per cent of family debt, equivalent to mortgage loans, have a set rate of interest, whereas half of enterprise loans even have a set price.
A decrease price of curiosity might encourage folks to tackle extra debt, including to a cumulative debt burden later, he mentioned.
The MPC stored the rate of interest low for an extended interval since 2014, and that coverage is taken into account as one of many elements that contributed to rising family debt.
The central financial institution began elevating the rate of interest in 2022 and 2023, from 0.50 per cent to the present 2.50 per cent each year, to examine rising inflation. Some authorities officers are pushing for a price lower with the intention to increase the sluggish economic system and help those that are indebted.
The central financial institution believes it could be higher to implement debt restructuring by working with lenders and debtors.
Business banks have launched debt restructuring to help small and medium-sized companies in addition to households. State-owned banks have launched debt restructuring and debt moratorium.
The federal government additionally has launched a debt restructuring program to help those that owe cash to mortgage sharks.
Influence of family debt
Many households have been severely impacted by the COVID-19 fallout and have been unable to service their debt as a result of unemployment and declining earnings as companies shut down throughout the pandemic.
The underside 20 per cent of households primarily based on earnings at present should borrow to make ends meet: 44 per cent of their debt is for consumption and simply 3 per cent for mortgages. In distinction, mortgages account for as much as 27 per cent of debt and consumption for 20 per cent among the many prime 20 per cent of households, in accordance with the central financial institution.
The underside 20 per cent have common month-to-month earnings lower than 12,000 baht whereas it’s greater than 40,000 baht for the highest 20 per cent households.
Many households have been unable to repay their automotive hire-purchase loans final yr, leading to a excessive quantity of car repossession. The repercussion of this example has been a pointy fall in costs within the used-car market, additionally impacting lenders that suffer from excessive loss on resold automobiles.
The central financial institution has issued a slew of measures to assist debtors clear or scale back their debt burden for the reason that pandemic in 2020.
The newest measure, beginning January 1 this yr, is a accountable lending program below which the central financial institution has requested monetary establishments to supply debt restructuring a minimum of one time for debtors earlier than their borrowings turning into non-performing loans (NPLs), and restructure their loans a minimum of as soon as after it turns into an NPL.
Susceptible teams who’ve what has been designated persistent debt are inspired to affix the conversion of revolving loans into installment funds with rate of interest at lower than 15 per cent a yr. The loans could be totally repaid inside 5 years.
Monetary establishments are usually not allowed to cost a penalty price for advance fee on private loans, besides in circumstances of refinancing of mortgage loans within the first three years.
Doubts about debtors
Surapol Opasatien, president and CEO of the Nationwide Credit score Bureau Co, mentioned that a lot of new mortgage functions have been rejected by banks throughout the fourth quarter to deal with present debtors who’ve a great monetary file. The state of affairs in January stays the identical.
He mentioned that decreasing the family debt from 91 per cent of GDP to 80 per cent within the subsequent three years could be virtually inconceivable. The 16.2-trillion-baht family debt is rising 3.3 per cent yearly whereas the GDP progress price hovers at round 1.8-2.5 per cent. Due to this fact, family debt would stay excessive for some time and this was a brand new regular, he mentioned.
Family NPLs are estimated at 1.05 trillion baht, down barely from over 8 per cent to 7.7 per cent, which is an effective signal, in accordance with Surapol. Progress in debt restructuring largely by state-owned banks has contributed to a declining pattern.
He’s apprehensive, nonetheless, about particular point out (SM) loans reversing again up. SMs rose to 610.6 billion baht in December 2023, up 17.8 per cent yr on yr, suggesting an incapability to service debt. Housing loans categorised as SMs rose 31 per cent to 178.3 billion baht in December final yr whereas auto loans elevated 7.6 perSurapol Opasatien, president and CEO of the Nationwide Credit score Bureau Co cent to 208.3 billion baht and private loans jumped 24.1 per cent to 145 billion baht.
These SM loans might doubtlessly degrade into NPLs.
Center and lower-income teams are discovering themselves in a tough state of affairs because of the rising minimal retail price, which has led to a spike in installment funds, he mentioned.
By Thai PBS World’s Enterprise Desk
