According to the Bank of Thailand (BOT)'s latest report on loans to household in 4Q20, household debt exceeded THB14 trillion as of the 2020 year-end, which is the highest ever recorded by the BOT in 18 years. This figure amounts to 89.3 percent of 2020 GDP. In terms of growth, outstanding household debt, however, grew only 3.9 percent, suggesting a more cautious stance of both borrowers and lenders during the pandemic-induced economic downturn.
KResearch is of the view that steady growth in loans to household in contrast to the slowing economy reflects different financial positions and borrowing objectives of two household segments. The borrowing objectives of the first segment are to purchase properties, residential units and automobiles because the impact of the COVID-19 pandemic on their income may be limited. The borrowing objectives of the second segment, on the other hand, are induced by the need to obtain loans for liquidity enhancement and/or as cash flow within their businesses because they have irregular income streams and a weak financial position in line with the economy.
Additionally, a poll conducted by KResearch shows that indebtedness and savings of retail business borrowers and income-stricken retail borrowers have deteriorated due to the impact of the COVID-19 crisis. The debt service ratio (DSR) of retail business borrowers stood at 44.1 percent of their monthly income in early 2021, while the DSR of income-stricken retail borrowers was 43.8 percent of their monthly income. The debt burden of the two segments was higher than the poll's overall DSR average at 42.8 percent of monthly income.
Regarding the 2021 outlook, we at KResearch assess that the recovery in economic activity from the COVID-19 crisis may cause household loans to increase over the 3.9 percent growth recorded in 2020. As a result, the household debt to GDP ratio may increase to approximately 89.0-91.0 percent of GDP in 2021, against the 89.3 percent of GDP reported for 2020. This will likely prompt the relevant Thai authorities to look at this issue more seriously once the COVID-19 crisis has subsided. In so doing, they may continue a measure, aimed at ensuring that household debt remains consistent with affordability.