Household debt increases amid immediate challenges in issuing relief measures to combat the COVID-19 crisis (Business Brief No.3874)

            ​According to the latest information, Thailand's outstanding household debt in 1Q20 fell by THB 3.56 billion compared to the previous quarter – down to THB 13.47 trillion, the first such drop in four and a half years, and close to the outstanding household debt of THB 13.48 trillion in late 2019; due to seasonal factors that still govern debt repayment by household and retail debtors. Meanwhile, anxieties over the spread of COVID-19 in and outside of Thailand continue, leading to a significant decline in outstanding debt with securities companies in line with the stock market plunge. Likewise, unsecured loans -both credit cards and personal loans under supervision have seen a sizeable contraction coinciding with cautious spending among Thai households.

            While household debt levels dropped slightly in 1Q20, the change is not as evident as the greater economic slowdown. By comparison, household debt to GDP rose from 79.9 percent in 4Q19 to 80.1 percent in 1Q20 – the highest level in four years, with the likelihood of further increase over the remainder of 2020. KResearch projects that household debt to GDP may move upward to the approximate range of 88 to 90 percent by the end of 2020. This would set the record for the highest level in 18 years (from BOT data reaching back to 2003) as a result of the severe economic contraction. At the same time, indications of financial assistance for retail customers of financial institutions – particularly relief of monthly installment payment and debt moratorium – should be able to keep the outstanding debt of households and retail customers from following the downward trend of the economy. Based on BOT data as of June 15, 2020, there are altogether 11.48 million retail customers who have received financial assistance – with a total debt of THB 3.8 trillion.

            In fact, the high household debt problem is happening not only in Thailand but also in many other countries across Asia. This scenario reflects a structural pain point and matters that pertain to the quality of commercial banks' retail loan portfolios. For commercial banks, there are two pressing issues at hand: the push to adopt assistance measures to help retail customers get through these difficult times, and vigorous debt restructuring to facilitate debtors' debt servicing ability – which would, in turn, reflect positively on the quality of commercial banks' loans.