Household debt dropped to 88.2 percent of GDP in 2Q22… Households avoid incurring large debts, but still use unsecured loans to enhance short-term liquidity (Current Issue No.3349)

Outstanding debt of Thai households rose to THB 14.76 trillion in 2Q22. However, when compared to economic value, the household debt to GDP ratio in 2Q22 dropped to 88.2 percent, against the 89.2 percent recorded for 1Q22. Additionally, when compared to the same period of last year, the household debt grew only 3.5 percent YoY, hitting an 18-year low, and slowing from the 3.7 percent YoY increase in 1Q22. In terms of structure, home loans and loans for own business still accounted for the majority of household debt (a combined portion of 53 percent of overall household debt).

Notably, large retail debts or relatively high credit limits such as home loans, loans for own business and hire-purchase car loans have grown at a slower pace over the past 1-2 years. This may reflect that households are more cautious about incurring new debts with high amount amid the uncertainties of the economy and household income. At the same time, it could be said that households bear existing high debt burdens and have begun to face limitations on incurring new debts due to their weak financial positions. On the other hand, individuals and households are taking on more unsecured loans – i.e. credit cards and personal loans. This reflects that many households have relied on such loans to enhance liquidity and solve short-term financial problems as their income is insufficient to cover expenses.

According to a poll conducted by KResearch, the results show that the indebtedness of almost all groups of households was greater than one-third of their monthly income. The average debt service ratio (DSR) of households surveyed stood at 33.9 percent of their monthly income. This suggests that some households are facing limitations or need to adjust their spending behaviour to be able to assume new debts without tapping into their savings.

Regarding the 2022 outlook, KResearch has adjusted the household debt to GDP ratio to be in the range of 85.0-87.0 percent, a decrease when compared to the figure of 90.1 percent of GDP in 2021. This is due to the high growth of nominal GDP in line with inflation, plus greater caution in incurring new debts by the household sector. Although the household debt to GDP ratio in 2022 is set to drop, close attention must be paid to several issues. For example, many households mainly rely on credit cards and personal loans – despite high interest – to enhance their short-term liquidity; and overall outstanding household debt continues to grow steadily. This will result in private consumption limitations and the fragile financial status of households amid the upward trend of interest rates in Thailand.