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5 Oct 2020

Econ Digest

Skyrocketing household debt amid a shrinking economy

The latest report from the Bank of Thailand revealed that Thailand’s 2Q20 household debt had risen following the disruption of economic activities during the COVID-19 pandemic. The outstanding household debt hit an 18-year high of 83.8% of the GDP, rising from 80.1% of the GDP recorded during 1Q20. The trend of rising household debt reflects the different circumstances of two groups of retail borrowers; some households with purchasing power have incurred new debt, such as home loans, while others are struggling with liquidity problems and need assistance from financial institutions.        

 

Regarding the outlook of Thailand’s household debt in 2020, KResearch views that high household debt remains one of the indicators of fragility in Thailand’s economic structure. We expect that household debt will increase to a range of 88-90% of the GDP in 2020, because Thai economic performance may continue to contract during 2H20. Meanwhile, retail loans, especially home loans and car loans of those households with purchasing power and the ability to repay debts, will continue to grow and may cause household debt to rise continuously, albeit at a slower pace.

 

           The deteriorating debt servicing ability of many households, caused by unfavorable economic conditions, is an important issue that warrants close monitoring. Although assistance measures for retail borrowers including specific measures from each financial institution and accelerating debt restructuring may help alleviate borrowers’ debt-related burdens, the future income and employment of households are important factors that will determine their credit quality, especially their debt servicing ability.

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Econ Digest