The crisis of high household debt is casting a dark shadow over Thai society: over a million people are on the edge of bankruptcy, some have committed suicide or crimes, and many are suffering from mental breakdowns.
The problem of high household debt has been hounding the country since the COVID-19 pandemic hit the country in 2020, when the household debt-to-GDP ratio climbed sharply to 90 per cent from 60 per cent in 2010. Currently it remains precariously high at 91 per cent.
Household debt totalled a staggering 16.2 trillion baht in the third quarter of 2023, increasing by 3.3 per cent compared to the same quarter last year. The household debt-to-GDP ratio remained stable at 90.9 per cent, unchanged from the preceding quarter, according to Thailand’s Social Outlook for Q4/2023 report released recently by the National Economic and Social Development Council (NESDC), a state think tank.
The high debt has enormous social consequences. News media often report stories of people taking their own and family members’ lives as they are unable to extricate themselves from their debt trap.
“The number of property crimes and crimes against life, body, and sexuality surged by 25.9 per cent and 15.1 per cent, respectively in the fourth quarter of last year,” according to the NESDC’s social report.
The problem with low interest rates
Low-interest rates of the past have been blamed partly for encouraging people to borrow more money. Commercial banks and non-banking financial institutions also provided disguised cheap loans to consumers. These financial products often offer zero interest for the first few months but charge higher rates later, or have enticing offers like “travel now, pay later”.
These end up in large personal borrowings, and car hire-purchase loans.
Undesirable consumer behavior
On the consumer side, borrowers are urged to be careful about their spending. In the era of social media, the NESDC pointed to the rising impact of influencers boosting consumption. They often lure people to spend on meals, cars, and vacations, encouraging their followers to consume products and services beyond their means.
The NESDC said influencers push certain types of content that do not breach any laws, but may contribute to misguided values in society, such as content centered around “showing off wealth”.
A study conducted by the College of Management at Mahidol University said that Gen Z individuals are the most susceptible to be influenced, with 74.8 per cent expressing themselves in this manner.
This includes presenting edited portraits to project an unrealistic beauty standard, potentially instilling misguided values among children and youth. “Furthermore, it could lead to increased financial strain as individuals may incur debt to acquire goods and services,” the NESDC noted.
Responsible lending guidelines for banks
The Bank of Thailand (BOT) has forced lenders to offer borrowers a debt-restructuring option before their loans become bad debts, as part of responsible lending guidelines put in place by the central bank.
The BOT has tried to make the lenders more careful about lending. Lenders have also been told to reveal adequate information about their debt burden. Lenders have to show that after paying their debt installment, they would still have money left for daily expenses on necessities.
Lenders have been told to calculate the rate on risk-based pricing—charge higher interest rates from people they consider to be higher risk borrowers based on credit report and application.
The result is that loan rejection rates have shot up. Now, loan applicants are complaining about difficulty in accessing bank loans.
Critics wonder whether the central bank’s debt restructuring push would work well.
Surapol Opasatien, chief executive officer at the National Credit Bureau Co, was pessimistic and said that if debt restructuring could not help much, lenders should lower their lending rates. That could also mean the central bank has to move first by lowering the key policy rate. The BOT has resisted pressure to cut the current rate of 2.5 per cent per annum as not high.
He revealed that lenders have won 1.05 million civil cases against debtors, combined total debt of 15 trillion baht, but those cases have been waiting for law enforcement after the court verdict.
Role of state-owned banks
The current government wants to use state-owned banks, known as specialized financial institutions (SFIs), to assist borrowers.
The central bank last month announced new regulations designed to allow SFIs to establish a joint venture asset management company to support long-term management of bad debts.
BOT assistant governor Ronnadol Numnonda said the move aims to minimize the economic impact of non-performing bonds incurred under the banks’ loans program during the COVID-19 pandemic that had been designed to help borrowers survive the crisis.
Critics are, however, cautious about a plan to move bad debts from SFI balance sheets to the AMC companies. They fear that the government may use quasi-fiscal measures to cover up the true public debt created by the government via populist policies.
Loans sharks menace
A large part of the debt is owed to loan sharks who charge high-interest rates from borrowers unable to access bank loans. Loan sharks become an easy recourse for people in need of money when they cannot borrow from banks.
According to the BOT’s financial access survey of Thai households in 2022, only 42.3 per cent could access bank loans while 89.6 per cent could access bank deposits.
Speaking on the small number of households that could access bank loans, Kittiya Indaravijaya, chief executive officer at Kasikornbank, admitted that it was a challenge for banks to support households, given the current high household debts.
Debt restructuring is more or less a time-buying strategy until the economy improves so that people could have higher incomes. The GDP growth of 1.7 per cent in the fourth quarter of last year was a huge disappointment.
Many research houses have forecast faster growth of the economy this year. Higher economic growth is expected to lower the number of criminal cases involving property. But lowering the household debt to a relatively safe level of 80 per cent of GDP would take longer, said Surapol.
Some positive signals
The total employed population in the fourth quarter of last year was 40.3 million, increasing by 1.7 per cent from the same period year on year.
Employment in the agricultural sector expanded by 1.0 per cent, while it increased by 2.0 per cent in the non-agricultural sectors, particularly in the hotels and restaurant sectors with an 8 per cent growth attributed to a rise in foreign tourists. Simultaneously, employment in the transportation/storage, wholesale/retail, and construction sectors increased by 4.5 per cent, 3.8 per cent and 3.1 per cent, respectively. However, manufacturing contracted by 2.3 per cent due to a slowdown in production of important industrial products.
The average monthly wage in the private sector was 14,095 baht per person per month, up by 0.9 per cent, while the overall average was 15,382 baht per person/month, down by 0.2 per cent. The unemployment rate was 0.81 per cent, accounting for 0.33 million people, a very low rate.
By Thai PBS World’s Business Desk