The BoT defines 2 trajectories for household debt


The BoT defines 2 trajectories for household debt

Proposals include fewer consumer loans

People discuss personal loans at a Money Expo held in Bitec in December. Household debt increased by around 5% in the first quarter of this year. (Photo by Somchai Poomlard)

A central bank economist predicts a crossroads for the country’s household debt over the next four years, rising to either 92.8% of GDP or 79.1%.

If Thai household debt increases to 1.2 times GDP, the average growth over the past five years, the country’s household debt will rise to 18.1 trillion baht or 92.8% of GDP by 2025, from $ 14 trillion in 2020 or 89.3 percent of GDP, said Don Nakornthab, senior director of the Bank of Thailand’s financial stability department.

If household debt increases sustainably by 2% per year on average, Thai household debt will reach 15.4 trillion baht or 79.1% of GDP by 2025.

He predicted that the country’s household debt in the first quarter of 2021 increased by about 5% year-on-year. In the fourth quarter of 2020, Thai household debt increased 3.9% year on year.

The Bank for International Settlements threshold recommends that a country’s household debt ratio should not exceed 85% of GDP.

According to central bank data for December 2020, the household debt burden was largely the result of credit cards and personal loans. The debt charge covering the principal and interest of these two unsecured loan products represents 58% of total consumer loans.

Mr. Don offers three options to reduce the country’s household debt and boost household incomes for the post-Covid era. The options include: restructuring the debt, discounting the debt and limiting the creation of new loans.

The central bank launched a debt restructuring program during the first wave of Covid-19 in March 2020.

A debt discount is an option under the third phase of the Bank of Thailand’s debt relief measures for auto loan borrowers on a case-by-case basis. The discount is offered to borrowers with a good payment record and limited debt following a car auction.

“We must first pay attention to debt restructuring to help borrowing households overcome the crisis. In the post-Covid era, when the economy recovers, we must pay more attention to reducing debt. household debt as this is essential for long-term sustainable economic growth. run, “he said.

The slowdown in new consumer loans will be a key factor in reducing household debt in the post-Covid period, Don said. The central bank’s responsible lending policy supports financial institutions by reasonably increasing new loans.

Macroprudential measures through debt service ratio (DSR) control are another mechanism to limit the creation of new loans, especially for credit cards and personal loans, he said.

“We can improve the DSR of the entire financial system by limiting credit cards for borrowers or reducing the lines of credit offered for personal loans. Several central banks in the region oversee unsecured loan products with such measures, ”Don said.

Data from the National Statistics Office revealed that the DSR of the local financial system is 40% on average. However, central bank data from a report on financial institutions revealed that the ratio exceeds 40%.


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