Thailand’s Household Debt-to-GDP Ratio Shows Signs of Improvement
The Bank of Thailand projects a more rapid decline in the country’s household debt-to-GDP ratio, thanks to effective debt deleveraging initiatives and a newly introduced debt relief scheme.
According to the central bank’s financial stability report for 2024, the ongoing debt reduction efforts have led to a decrease in the household debt-to-GDP ratio, which now stands at 89.6% for Q2 2024, down from 91.3% at the end of 2023. This decline comes amid slower growth across consumer loan categories, especially auto loans and credit cards.
Despite the overall decrease, the growth of car title loans and co-operative loans continues to provide liquidity to households.
In comparison, Thailand’s household debt-to-GDP ratio remains significantly higher than in neighboring nations, with Malaysia at 66.5%, China at 62%, Singapore at 48.4%, and South Korea at 101.5%.
The recent debt relief program, “You Fight, We Help,” is anticipated to bolster debt alleviation efforts in the household sector by reducing monthly mortgage payments and interest rates, easing the financial burden on borrowers.
The central bank is committed to closely monitoring the impacts of these debt-reduction measures on household liquidity.
It cautions that if debt reduction accelerates too rapidly amid stagnant income growth, the household sector may face liquidity issues, which could negatively impact domestic consumption and overall economic health.
High household debt levels combined with sluggish economic growth are increasing the vulnerability of both households and small to medium-sized enterprises (SMEs) regarding debt repayment capabilities.
The regulator expressed concern over the deteriorating asset quality among vulnerable borrowers, noting that the number of local SMEs with weakened financial statuses is on the rise; 28% of small SMEs and 74% of micro SMEs have interest coverage ratios below one.
Meanwhile, major corporations are beginning to slow down new debt issuances, despite their strong debt repayment capacity, due to prevailing high debt levels across both loans and bonds.
As of the second quarter of last year, the business sector’s debt-to-GDP ratio was reported at 86.5%, down from 89.9% during the pandemic.
Financial conditions within the Thai system are expected to tighten, with the central bank closely monitoring developments. The report confirms that the country’s financial institutions, including banks, co-operatives, and insurance companies, remain robust and functional, showing no signs of an asset price bubble.
