While Thailand’s household debt to GDP ratio may be in line with other economies and below many developed countries, it is still among the highest in Asia. Household debt in Thailand compared with developed economies is less likely to be secured by property assets, may well be growing faster than the economy and those in society who are borrowing are less financially disciplined according to recent research.

The Bank of Thailand governor, Veerathai Santiprabhob, on Monday warned about the surge in personal debt in Thailand, especially among young professionals and called for a major shift in thinking within the country back to sufficiency economic principles and away from overconsumption. He also indicated he was looking at measures to rein in credit card debt and introduce more stringent lending criteria across the board.

The Bank of Thailand governor was speaking on Monday at a seminar. He spoke directly at what he saw as a problem of rising personal debt levels and indicated that he was prepared to take action to rein in credit card debt and apply more stringent loan criteria. In March, a Bank of Thailand report warned about ‘unsustainable’ debt levels among consumers and clarified its role in highlighting this to the public and encouraging better financial discipline in Thailand.

The Bank of Thailand governor on Monday, echoing comments by other bank officials recently, again warned about the high level of borrowing in the kingdom’s private sector and called for a return to sufficient economics.

Governor this year moved decisively to curb property and motor loans which have hit hard

Veerathai Santiprabhob, from April 1st this year, introduced decisive curbs on property finance and motor loans which have had a definite impact on both the motoring industry and the property sector. The effect on both industries has been a definite slowdown. That he is still sounding the alarm about the issue now suggests that the problem with debt is a wider one within Thai society.

Lower interest rates put pressure on bank profits

The Thai central bank recently unexpectedly lowered interest rates and is under pressure to do so again as the Thai baht, in the last few weeks, has begun again its upward momentum against the dollar and surged against the Yuan following its effective devaluation in August. Lower interest rates inevitably put pressure on bank profit margins forcing them to look to banks charges as an alternative.

Although most Thai banks reported healthy profits in the first half, many of them noted an upward tick in non-performing loans in the small and medium business sector.

Young, active Thais are living beyond their means

On Monday, the Bank of Thailand boss appeared to be more concerned about consumer behaviour and directed his comments at the middle class and particularly young professionals with degrees or the equivalent. He put it bluntly to them that they are living beyond their means and attributed much of the ballooning levels of household debt to borrowing by younger people for cars and or consumer spending to maintain a certain lifestyle. He also mentioned that many had become quite adept at online shopping having graduated from university and found gainful employment.

Different emphasis from government policy aimed at stimulating consumer expenditure

It might appear that the senior banker’s comments, to some extent, reflect a different sense of emphasis to the government plans to prime and stimulate consumer spending in the economy. However, the senior banking officer was addressing people who use borrowing as a means to fund such spending.

In Thailand, the balance between those who borrow and those who save seems evenly spit but there is also a difference between the generations. Generation Y adults, the emerging tech-savvy generation from Thailand’s middle-class show cause for concern. 50% of them have no savings while 48% admit to defaulting or being late in making a debt repayment according to a respected economic source.

Personal borrowing in Thailand is ‘unsustainable’ – Bank of Thailand report in March

The figures are disconcerting. Thailand’s household debt is surging and grew from last year to this year by ฿700 billion alone. The Bank of Thailand has previously warned that it is simply ‘unsustainable’ and will lead to an increasing range of vulnerabilities.

The governor’s comments on Monday can be taken as part of its stated policy to push the Thai public into being more financially responsible.

Debts level out of kilter with emerging economies

Thailand’s level of personal debt to GDP of nearly 79% of GDP is well out of kilter with most emerging economies where the average is 40%. A study by the Puey Ungphakorn Institute of Economic Research quoted by the Bank of Thailand also highlights some more worrying aspects of the problem.

20% of Thailand’s working population has a personal debt that is 3 to 4 times their income. Figures from 2010 to 2016 show that the average debt per person in Thailand rose from ฿70,000 to ฿150,000. We do not have figures for late 2019 but the trajectory is clear and consumer spending has risen in the meantime. The latest figures suggest it may now be well over ฿200,000 based on absolute terms and working-age adults who may borrow.

The same institution reported that a significant 16% of the population was 90 days behind on debt repayments. This data was based on analysis before the significant slowdown that impacted Thailand in the second quarter of the year.

Governor was speaking at a seminar

It should be noted that the context for the Bank of Thailand supremo’s speech on Monday was a seminar where he was speaking on the subject of ‘The Royal Initiative: Immunity for Thai Economic Structure’ and was highlighting the influential principle of sufficiency economics.

Independent role of Bank of Thailand

The Thai Deputy Prime Minister for Economics Somkid Jatusripitak recently proposed a high-level committee involving the Minister for Finance, key finance and economic officials and the central boss to co-ordinate policy during these challenging economic times. However, the mandate that the Bank of Thailand’s governor is quite independent of government, a point recently acknowledged by the Finance Minister, Uttama Savanayana.

Bank of Thailand boss draws attention to meagre incomes in the country’s farming sector

In his speech on Monday, the Bank of Thailand boss contrasted the current borrowing binge by city professionals in Thailand to 40% of Thai farmers who he noted had an income of less than ฿5,000 per month. 

He called for a change of heart and return to the self-sufficiency approach to economics which many respected Thai economists have advocated. This approach would place less emphasis on economic growth,  expanding wealth or raising incomes and more on creating a more equal society with less of an emphasis on debt and consumption.

Personal borrowing continues to rise

The Bank of Thailand governor also pointed out that despite curbs on borrowing in keys sectors, Thai people are still borrowing more from banks and this was particularly true of young, well-educated adults. The central baker noted that with interest rates so low at present, there is also little incentive for those among the population who are more likely to save.

To this end, he said he was looking at what could be done to rein in credit card debt by issuing regulations and more stringent lending policies. The bank is already operating its debt clinic to assist over-borrowed customers of financial institutions but this is acknowledged by many financial experts to be quite limited although perhaps a useful exercise if at some point it could be expanded.

Thailand has ฿12.9 trillion in personal debt in addition to a huge casual lending black market

Thailand currently has ฿12.9 trillion in personal debt and as economic growth slows, the figure may become more a source of concern. Also, bear in mind, that there is another large and economically significant market out there comprising of black market, casual lending on both a personal basis and linked with loan sharking.

Thailand is not the same as developed in western countries, no comfort in irrelevant comparisons

Many western countries have higher levels of debt but there are factors which differentiate the situation in Thailand. Those taking comfort from higher debt to GDP ratios in those countries are misled. One is that borrowing in western economies is more than likely to be secured by physical assets, the second is that in healthy economies, the rate of economic growth stays ahead of the growth rate in borrowing. The third is the level of financial discipline in society which is linked to a country’s economic history and culture.

80% of Thai borrowers in a university study had defaulted on a repayment in the past 12 months

An alarming report by the University of the Thai Chamber of Commerce recently showed that over 80% of borrowers had defaulted on a loan repayment within the last 12 months. Research also shows that it is the same coterie of people in Thailand who borrow money while a significant proportion of the population never incurs debt at all. This may be problematic and with darker economic storm clouds on the horizon, expect to hear more about his issue.

Further reading:

Thai households struggling with a growing debt burden with ฿13 trillion in debt owed to banks

Thai central bank boss introduces new ‘debt clinic’ as he urges action on kingdom’s high household debt

Debt means death as a crazed Thai man slaughters his loving wife and children in Bangkok in horror scene

14 wealthy loan sharks taken in by Thai police as money lending menace and debt remain a big problem

The pervasive problem of debt in Thailand and the struggle to survive for those hit by bad fortune