Household debt in Thailand: Is it unsustainable?
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Household debt in Thailand: Is it unsustainable?

Every month or so, there is a new article expressing concern about the rising household debt (a story from 2009 from The Nation with the headline “Rising household debt poses threat to economy” is a classic example). The Nation today:

The chamber yesterday revealed the results of a survey conducted from March 22-26 on household debt and the impact of the increase in the minimum wage that takes effect this weekend. The survey found that debt grew by 5.7 per cent year on year to Bt168,517 per household, while the ability to make debt payments averaged Bt10,978 per month, said Thanavath Phonvichai, director of the Economic and Business Forecasting Centre of the University of the Thai Chamber of Commerce.

The cost of living has exceeded consumers’ income, which has also reduced their savings. This has undermined consumer confidence.

“The respondents believe that the economy has not recovered in the first quarter of this year but [would do so] in the second half.” Thanavath said they also expressed worries on whether the Thai economy would recover in the future.

In addition, they expressed concern that government spending on mega-projects and infrastructure would raise the country’s public debt from the current level of 41 per cent of gross domestic product to 50 per cent.

Consumers’ incomes have not kept up with rising costs. The higher price of goods accounts for 60.2 per cent of this shortfall, rising interest rates 18.5 per cent, soaring fuel prices 10.3 per cent and unexpected factors 10 per cent, the survey found. As a result, people have to use more their savings to hold down debt.

The survey also found that 30.1 per cent of low-income people, mainly those earning Bt10,000 per month or less, had borrowed from loan sharks. This group has high potential to borrow more and raise overall household debt.

BP: UTCC conduct a monthly consumer confidence index and in March they released the February index (Thai only) and the CCI  rose from 74.2 points to 75.5 points (third month in a row – there are a few different CCI values, but the other one rose for the 5th month in a row). Another report on the same survey focused on the increasing income for low income workers:

Following activation of the new minimum wage, approximately 3.5-5 million labourers will earn more income–about Bt60 per day each, UTCC Economic and Business Forecasting Center director Thanawat Polwichai, told a news briefing on Thursday.

Some Bt7-9 billion (US$230-300 million), was expected to be circulated monthly, which will help spur the country’s economic growth by 0.5-0.6 per cent.

BP: As BP blogged back in 2007, it is important to take into account increased income, increased assets and the ability to repay the debt – now it is easier to obtain credit particularly for those of lower incomes, but they have been able to borrow more from formal lending sources so less of the money they borrow is done through loan sharks who charge exorbitant interest rates which means they level of interest they pay is significantly lower. Now, the UTCC survey of 1,237 respondents suggests some problems with repaying debts, much lower NPLs and overall increasing income – as per NESCB – suggest increasing household debt is less of a problem.

While looking for something else, BP stumbled across a new site which has a wide array of economic stats for Thailand. Below are some relevant charts:

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Source: Charting Economics Thailand

BP: Household debt is rising, but household income is rising at a higher rate. This makes it easier to service debt.

Some of this information can be found in an NESDB report in late 2011 – English and Thai in PDF

Average household debt is likely to rise especially during the end of the yea. In the first half of 2011, average household debt went up to 136,562 baht per household from 134,699 baht in 2009, but the proportion of households with debt was reduced to 56.9% from 60.9% in 2009. It is expected that household debt will rise and savings will drop in the remainder of the year. This due to the decline in revenue resulted from flood impact.

Then this below chart from the BOT in 2011:


Then the explanation:

Households, financial stability remained sound as reflected by the debt-to-asset ratio in 2010 Q3 that declined from the previous quarter. Although household debt, as reflected especially in mortgate and auto loans, continued to expand given the broadly supportive financial environment, the ongoing increase in economic activity and the strong labour market helped reduce risks to income and employment. As a result, households’ ability to service debt remained sound, as indicated by a decrease from the previous quarter in the ratio of non-performing consumer loans to total consumer loans.

BP: Notice assets are increasing more than debts although because of the floods, the NPLs went up again.

BOT from 2012:


Then the explanation:

Income and employment fell slightly from previous periods, especially farm income which declined steadily in October and November (Chart 3.13). Such a trend could potentially affect future financial conditions of households. Meanwhile, the debt-to-asset ratio of households continued an upward trend whereby a sharp increase was witnessed in 2011 Q3 (Chart 3.14). Households’ debt-servicing ability deteriorated following the impact of the floods, The ratio of special mentioned loans (i.e. loans past due for 1-3 months) increased in both October and November, especially that of credit cards, which rose from 2.1 percent in September to 2.8 percent in October and 3.2 percent in November (Chart 3.15). However, a closer examination revealed that such deterioration in households’ debt-servicing ability was not concentrated in any particular income groups; thus, the overall households’ stability is not yet a concern. Besides, the impact of the floods has already largely abated.

BP: Ok, so NPLs loans went up after the floods  – although according to the BOT governor “eased repayment terms have mitigated the financial impact of the floods and helped prevent a build-up of non-performing loans in the banking system” – so we will need to wait and see what the trend is from the next quarterly report.*

In conclusion, debt is increasing, but income and assets have been rising higher, if you believe NESDB and the BOT, or if you believe UTCC, then things are dire.

btw, for Thanong’s take on things, see here….

*Nevertheless, the current NPL rate pales in comparison to the rate just after the 1997 crash and has been declining since then. See this BOT chart: