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23 Feb 2023

Econ Digest

Household debt…Implications for long-term consumption trends

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        KResearch conducted a study on the effects of high household debt in Thailand and found results that are consistent with those of the Bank for International Settlement (BIS). As evidenced, increasing household debt has a positive impact on consumption in the short-term, but will reduce the potential growth of household consumption in the long run. It means the Thai household debt to GDP ratio that has recently persisted at a high level is becoming a limitation to overall consumption growth.

        Considering the outlook for 2023 and the near future, KResearch views that household debt will likely see slower growth. The reasons are as follows: 1) The upward trend of interest rates in Thailand. Consequently, consumers and the household sector are more cautious about incurring new debts, especially retail loan products that are sensitive to rising lending rates. Such loans include those offering relatively high credit limits and long-term repayment periods – such as home loans, secured multi-purpose loans and hire-purchase car loans. Meanwhile, the uneven economic recovery may cause financial institutions to remain concerned about credit risks posed by certain groups of debtors as well; 2) Guidelines for tackling household debt issued by the regulators. The Bank of Thailand released a directional paper on sustainable solutions to Thailand’s structural debt overhang problems. According to the paper, additional measures and incentive schemes are expected to be introduced, in terms of both resolving existing debts with a focus on debt restructuring, and managing new debts incurred in 2023 by prioritizing debt repayment capability and avoiding unnecessary debts.

        Therefore, KResearch projects that retail loans in the Thai banking system in 2023 may grow in a range of 3.7-4.8%, down from average growth of 6.0% during the past five years. Meanwhile, the Thai household debt to GDP ratio may drop for the second consecutive year to be in a range of 84.0-86.5% in 2023, compared to an estimated figure of 86.8% at the end of 2022, against the 90.1% recorded for 2021. Although Thailand’s household debt to GDP ratio may tend to slow down in 2023, the outstanding debt balance will continues to increase. Therefore, the challenge in addressing Thailand’s household debt problem is not only to reduce the household debt to GDP ratio, but also to ensure the newly-incurred debts are of quality to gradually change the overall household debt structure to contain a livelihood-friendly debt mix.

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