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21 Feb 2023

Financial Institutions

Overall household debt set to drop to 84.0-86.5 percent of GDP in 2023…High debt burdens continue to limit future consumption growth (Current Issue No.3383)

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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 is of the view that household debt will likely see slower growth. The first reason for this is 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. The second one is 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. Based on such circumstances, KResearch projects that retail loans in the Thai banking system in 2023 may grow in a range of 3.7-4.8 percent, down from average growth of 6.0 percent 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 percent in 2023, compared to an estimated figure of 86.8 percent at the end of 2022, against the 90.1 percent recorded for 2021. As a result, the household debt to GDP that tends to stabilize or decline shows a different picture and inverted effects compared to previous years. This is because even though a gradual decrease in household debt may cause slowing consumption in the short term, it will lead to positive effects on the stability of the financial system, as well as long-term consumption and economic growth.

        Additionally, in the medium and long term, the challenge of solving household debt problems in a sustainable manner is not just a matter of reducing the level of household debt, but also depends on managing incurred debts to be beneficial to the household sector. These efforts will eventually boost quality loans in relation to the overall household debt.

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Financial Institutions

Household debt