The Thai household debt situation after COVID-19

10.8% of surveyed population could suffer financial crisis at the household level

With the anticipated progress of vaccine distribution in Thailand and major economies, together with the government’s ongoing economic stimulus measures, it is believed that the Thai economy will soon emerge from its trough in the first quarter of 2021, and will see further improvement during the remainder of the year, barring any major disruption that could be caused by another outbreak of the virus.

The possibility of an economic recovery could bring about some benefit but when it comes to the debts it is a different story because debts tend to lag in the economic cycle, meaning that the country’s household debts is expected to continue their upward trend and reach 89.0-91.0% by year-end, compared to an estimated 89.2% at year-end 2020 and 86.6% in the third quarter of 2020.

This increasing trend of household debts does not surprise and in fact seems inevitable in most countries, as economic growth – hit by the pandemic – either contracted or slowed in 2020, while loan growth continued its upsurge following financial-aid measures and repayment moratoria.

Nevertheless, the near-term focus is not on how to reduce household debts, but rather how to assist households that are still struggling to survive this economic crunch. 

19.9 per cent of household debts have entered financial-aid measures provided by financial institutions.

According to Bank of Thailand (BoT) data, debts under financial-relief programs stood at 2.79 trillion baht at the end of 2020, equivalent to approximately 19.9 per cent of the country’s household debts. The new round of pandemic is expected to further increase debt outstanding under financial-aid programs during February-April 2021, although such levels are not likely to surpass the prior peak seen in the third quarter of 2020.

The question is then whether or not there will be borrowers who continue to need assistance measures especially after the debt-relief programs for retail loans end in June 2021. The answer is ‘yes’. 

However, due to the positive developments in vaccine distribution worldwide that should be followed by greater flexibility in terms of an end to lockdown measures and a surge in tourism activities, any future assistance measures could be directed more specifically to those who remain in serious need, depending upon each financial institution’s debt handling policy, rather than the standardized measures implemented previously.

KResearch’s survey on personal debts and savings of participants in Bangkok and the vicinity in early March 2021 suggests that 10.8 per cent of survey participants are at risk of facing a financial crisis resulting from a drop in income, an inability to reduce expenses, and a high debt service burden per month (exceeding 50 per cent of monthly income). This group of participants is also concerned that it may not be able to provide for its basic needs in the near future because of, for instance, income risk and higher living costs. 

When asked what types of assistance are needed from the authorities or relevant parties, the survey participants ranked liquidity support at the top, followed by job creation that could help them maintain a stable revenue stream. Extension of financial-aid measures from related institutions, though also deemed essential, was ranked third.

The survey results, together with the uptrend in household debts, provide some interesting takeaways for the authorities, businesses, as well as financial institutions.

For authorities, additional relief measures will still be required, though they could be more targeted to certain segments in accordance with the degree of problems they continue to face. Besides retail individuals, SMEs will remain among the government’s top priorities, especially those in the tourism supply chain that are waiting for good news regarding vaccine distribution in Thailand. 

For businesses, they are perhaps well aware that customers’ purchasing power has been diminished, so adjustments in product features, quantity and price have become more essential to help sustain overall sales volume. Installment repayment programs could be a ‘new normal’, while businesses should always seek new markets and customer groups that have growth potential.

For financial institutions, NPLs continue to merit close watch over the next 1-2 years, even though the economy could be in recovery mode by that time. 

To tackle household debts, all involved parties will need to undergo structural adjustments together to promote rational consumption habits and long-term savings, with broader education in financial literacy. 

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