2Q16 Household Debt on Softening Trend, 81.0-82.0%/GDP by Year-end (Business Brief No.3641 Full Ed.)

Thailand's household debt to GDP has edged downward for two successive quarters to 81.3 percent in 2Q16, versus 81.5 percent in 1Q16, suggesting that loan products aren't as lucrative now as before. Auto financing has been held back by repayments on vehicles purchased via the previous First Car Buyer program, while consumption loans, e.g., credit cards and personal loans, have been a letdown because households are limiting their disbursement.

On top of that, commercial banks have become more prudent in loan approvals to ensure acceptable asset quality, pressuring overall household debt growth. However, mortgage loans remain a major growth driver, thanks to the government's property stimulus offering privileges to those who opt in by the end of this quarter. As a result, outstanding household debt thus increased THB108 billion from 1Q16 to THB11.24 billion in 2Q16, rising 4.3 percent YoY, but inching downward from 1Q16's 4.7-percent growth.

Recent attempts to redefine household debt by including education debt owed to the Student Loan Fund (SLF), but leaving out business loans, should help to decrease household debt to GDP to 75.0 percent by the end of 2Q16. This technical redefinition, however, does not impact the actual debt each family owes. Thus, mounting household debt remains an impediment to families' spending.

We at KResearch expect that households will likely put on hold any plans to seek more loans. When combined with the fact that financial institutions have adopted more stringent loan policies that should remain in place until this yearend, household debt may grow at a slower pace of 3.5-4.0 percent YoY, versus the 5.2 percent reported for last year. With that in mind, we have revised downward our forecast for household debt to GDP to 81.0-82.0 percent, from the 81.5-82.5 percent estimated before.