Bank appears to be getting ready to tackle skyrocketing household debt levels which continue to significantly outpace GDP gains. Such a move could in itself hamper the domestic economy as households are weaned off easy credit in the short term. This would be hard economic medicine for long term gain and financial health moving forward.

Despite the announcement by Prime Minister Prayut Chan ocha last week that Thailand was to fully reopen for business within four months, the growth prospects for the economy continue to weaken ahead of a key meeting of the Bank of Thailand on Wednesday where growth projections are expected to be cut as key executives at the bank turn their attention not to GDP growth but to managing the country’s private sector debt levels.

In advance of Wednesday’s Monetary Policy Committee meeting, the Bank of Thailand Governor Sethaput Suthiwartnarueput has indicated that there is no need to lower interest rates below the historic rate set last year at 0.5% nor is there a liquidity issue. There is, however, work to be done on managing private sector debt including providing soft loans for business and a concerted effort to finally tackle the country’s out of control household and consumer debt spiral.

The Bank of Thailand is expected to lower its GDP growth projection at its Monetary Policy Committee meeting on Wednesday according to a survey of financial analysts.

It follows a downgrading by the National Economic and Social Development Council (NESDC) in recent weeks which now predicts a growth rate for 2021 of between 1.5 and 2.5% with most analysts projecting it at the lower end of that range.

The previous Bank of Thailand forecast was 3%.

Concern remains heightened with real fears of a 4th virus wave driven by the Delta or Indian variant

Concern is still elevated over the third wave of the Covid-19 virus in Thailand.

On Monday, the kingdom reported 29 new deaths and 3,175 new infections while Tuesday’s figures showed 35 deaths and 4,059 infections. 

There is also deep unease at the outbreak within the manufacturing and food processing sectors with one public health official going rogue over the last 24 hours and expressing fears about the impact of the Indian Delta variant of the virus spreading through the kingdom’s construction sites which use migrant labour.

Speaking anonymously with the Thai Enquirer news website, he warned: ‘We’re seeing increased numbers of Delta-type infections in work camps and construction sites across the central region. If further action is not taken, we can see a fourth wave of this disease and it will spread quickly in these unprotected sites.’

Former government minister warned of such an outcome in May, something which would severely test the government’s now limited resources

The fears expressed by the official echo that of former Minister at the Office of the Prime Minister, Kobsak Pootrakool, an economics expert and now a senior vice president with Bangkok Bank.

In May, he warned of the danger of a fourth wave which may place the limited resources of the Thai government under strain to a critical extent even beyond the scope of the extra ฿500 billion borrowing facility which it pushed through parliament last week.

On Wednesday night, the Prime Minister, Prayut Chan ocha, delivered a boost to business confidence when he announced that the country would fully reopen to international travel within four months. 

Plan to reopen in four months dependent on a 70% vaccination rate being achieved in all areas

This commitment has since been qualified by officials saying the plan was dependent on a 70% vaccination rate among the public.

Closure of Phuket bars and alcohol restrictions turn off prospective foreign tourists says survey

It comes as General Prayut is planning to visit Phuket this Friday to see first-hand preparation for the pilot reopening of the island to foreign tourists amid troubling reports that demand from the international tourist market has been stunted by changeable and over burdensome regulation.

Growth in 2021 now hinges on the last quarter

Growth prospects for 2021 hinge on confidence in the domestic economy, the continued success of Thailand’s exports and a return to high volume foreign tourism levels both in terms of visitors and income in the fourth quarter.

With the country’s manufacturing sector now being threatened by the Delta and other variants of the disease and with complications arising in the vaccine rollout for June with official scrambling to find 8.5 million doses when at least 10 million were required, there is apprehension about the kingdom’s economic prospects which are hinged on achieving a 5% growth rate in the final quarter of 2021.

Bank of Thailand governor emphasises that interest rates and liquidity are not issues, private sector debt is

In the meantime, the Bank Of Thailand is unlikely to alter its record low interest rate of 0.5% with Governor Sethaput recently pointing out that the rate was not an issue nor was liquidity in the system.

The bank’s officials and executive top brass are increasingly focusing their attention on managing the kingdom’s debt levels with efforts to provide soft loans to business and debt restructuring for business firms particularly in the tourism sector which has been the most seriously impacted by the crisis.

3rd virus wave now spells not just economic loss but financial danger as the kingdom’s debt level rises

Key elements of this plan include an asset warehousing scheme which is being worked on in conjunction with the Finance Ministry at a cost of ฿100 billion but which is also to be supported by ฿250 billion in soft loans to refloat damaged businesses throughout the kingdom especially those linked to tourism and which are vital to the infrastructure of the industry which directly and indirectly supports 20% of GDP and has a strong influence on domestic economic confidence.

Household and consumer debt burden is the new focus for the bank’s senior executives

The Bank of Thailand is also looking at household debt and will be looking closely at consumer credit conditions with a view to lowering interest rates charged to end consumers.

This was the view this week of Kasikorn Bank’s Kobsidthi Silpachai, the chief of the Capital Markets division.

‘We can expect to see at least some guidance and possibly moves to lower the interest rate ceilings on consumer credits,’ he said when speaking with the Bangkok Post.

Action on household debt looks likely after the first quarter saw it grow by 5% year on year from a high

In the medium to longer-term, the central bank is determined to do something about the high level of household debt which reached 89.3% of GDP at the end of 2020, a historic high which is thought to have grown by  5% on a year on year basis in the first quarter of 2021 compared with a 3.9% rise in the last three months of 2020.

This is not good news for the central bank which sees the trend of such borrowing, which is 58% made up of unsecured credit card debt and personal loans, as either growing by 2% on a year on year basis in the aftermath of this crisis to 2025 in which case the figure will come in at 79.1% at the end of four years or as is feared, the debt level continues to balloon into danger territory requiring strong measures.

Bank to begin monitoring Debt Service Ratio (DSR) to bring consumer borrowing into line in Thailand

In this situation, the bank must heed international advice suggesting that any figure in excess of 85% could become troublesome.

Many economists have long viewed the consistently high level of Thai household debt as dead weight on any prospect of strong economic growth moving forward.

To deal with the problem, officials led by Mr Don Nakornthab, the senior director for financial stability at the institution, are looking at the DSR or Debt Service Ratio measurement for each Thai household on record within the financial system. 

This is the amount of disposable income compared to the amount of debt required to be serviced.

The senior bank official revealed that figures from the National Statistical Office show this figure for Thailand appears to be 40% on average but that is not the figure gleaned from examining bank records where it appears to be far higher.

3 approaches to cutting back household debt levels to be pursued by the Bank of Thailand in tandem

The bank is looking at three approaches to reining in household debt in the medium term.

These are debt restructuring for borrowers, debt haircuts and stronger control over consumer lending by all the banks moving forward using the DSW measurement.

The problem, of course, with the latter is that similar moves in 2019 relating to car loans set back domestic sales and that this in itself may stymie the economy in the short term.

Debt restructuring, debt haircuts and limits on future lending using DSR measurements for all households

The bank is pointing to its debt restructuring efforts for eligible borrowers since the Covid-19 crisis began as another key approach as well as debt haircuts which are being considered for borrowers with a good record involved with the surrender of cars or vehicles which are disposed of at auctions.

Going forward, the bank may use DSR ratio requirements to limit the extension of credit card and personal loan facilities to borrowers despite the short term pain as such hard medicine may be good for the country’s economic health in the longer term.

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Further reading:

Loan bill passes but Thai economic prospects are not bright with a 1.8% 2021 GDP gain predicted

IMF urges government to loosen nation’s purse strings as finances tighten with the tax take down

Failure to pass the ฿500 billion borrowing decree could lead to the dissolution of parliament

Baht to strengthen later in the year even after July as foreign tourists will return says top bank economist

Economic picture continues to darken as cabinet approves new ฿700 billion loan to plug the gap of higher deficits

Thailand facing a credit crunch as 3rd virus wave craters the kingdom’s economic recovery plans

3rd virus wave now spells not just economic loss but financial danger as kingdom’s debt level rises

Still time to avoid lockdown says Health Minister as 3rd virus wave dwarfs all infections to date

Thai economy is still in reverse despite rising confidence and a virus threatening a 3rd wave

Reopening of Phuket still not officially approved although it is the ideal test for a broader move

Minister urged not to be afraid to borrow in 2021 as fears grow for a quick foreign tourism revival

Economy to rebound as the year progresses driven by exports and a return of mass foreign tourism

Door closing on quick foreign tourism return as economic recovery is delayed to the end of 2022

Phuket’s plan to self vaccinate on hold as Interior Ministry orders private sector out of vaccine deals

Refloat of foreign tourism in the 2nd half of 2021 with vaccines pushed by minister and industry for the sector

Fact – only 6,556 visitors arrived in Thailand last month compared to 3.95 million in December 2019

Desperate foreign tourism business concerns are clinging to straws as they try to survive the crisis

Finance Minister says economy must pivot away from tourism with a switch to S-Curve industries

Steady as she goes economy driven by exports and public investment with a 3.3% growth rate forecast for 2021

Thailand’s tourism boss targets thousands instead of millions as public health is prioritised above all

Thailand unlikely to reopen doors to mass-market tourism before the end of 2021 until after a full vaccination

Strengthening baht predicted as investors bet on a reopening of Thailand to mass tourism in 2021

World’s biggest free trade deal just signed will be a huge boost for the Thai economy and exports

US move against Thailand on trade is a warning as Thai exports to America boomed in September by over 19%

Thailand’s trade agenda may be complicated and thwarted by raised tensions in the Indo Pacific region

RCEP deal agreed as India opts out – busy Bangkok ASEAN summit concludes on a low key

Industry boss urges Thailand to join alternative Pacific trade pact and plan for a long recovery from virus debacle

Thailand’s economy has become dependent on government expenditure to stay above water

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Rice price spike but drought conditions to recede – security concern for the Mekong river

US election will impact investment and moves by US firms from China to Thailand says new American envoy

Thailand faces a third shock after the virus if high debt and the informal economy are not prioritised