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17 Oct 2022

Econ Digest

Households slow down, incurring large debts in 2Q22…Household debt to GDP dropped to 88.2%

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        Although the outstanding debt of Thai households rose to THB14.76 trillion in 2Q22, the household debt to GDP ratio in 2Q22 dropped to 88.2% from the 89.2% recorded for 1Q22. Compared to the same period of last year, the household debt grew by only 3.5%YoY, hitting an 18-year low and a slowdown from the 3.7%YoY increase in 1Q22. Structurally, the majority of household debt continues to be home loans and loans for self-employed business, which together account for 53% of overall household debt. Notably, large retail debts or relatively high amounts of personal credit, such as home loans, loans for self-employed business and hire-purchase auto 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 of a  high amount amid the uncertainties of the economy and household income, or it could be seen that households have high existing debt burdens and have begun to face constraints on incurring new debts due to their weak financial positions. At the same time, individuals and households have more unsecured credit card loans and personal loans, reflecting that many households have relied on such loans to enhance liquidity and solve short-term financial problems.

        According to a survey conducted by KResearch on households’ indebtedness, the results show that almost all households have debts exceeding one-third of their monthly income, with an average debt service ratio (DSR) of 33.9%. This may suggest that some households are facing limitations or need to adjust their spending behavior to be able to take on new debts without tapping into their savings for the future. Regarding the 2022 outlook, KResearch has adjusted the household debt to GDP ratio to the range of 85.0-87.0%, down from the ratio of 90.1% 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, such as the reliance on high-interest loans like credit cards and personal loans to enhance their short-term liquidity, and the continued growth of overall outstanding household debt. This reflects that in addition to the private consumption limitations, it also reflects the fragile financial status of individuals and households amid the upward trend of interest rates in Thailand.

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