Thai Households Pile up Debt as New Virus Wave Weighs on Income

(Bloomberg) -- Thailand's household debt, already among the highest in emerging Asia, is expected to rise further as a fresh Covid outbreak curbs incomes, weighing on consumer spending and heightening financial-stability risks.

Household debt stood at 13.8 trillion baht ($460 billion), or 87% of gross domestic product, at the end of September 2020, up from 79% a year earlier, according to central bank data. Debt levels will be one of the risks the Bank of Thailand considers in its policy decision Wednesday after its latest meeting minutes cited household finances as a factor that warrants attention.

Even before the pandemic, “we were already concerned about the household debt level in Thailand, as it inhibits private consumption spending and long-term potential growth,” said Charnon Boonnuch, an economist at Nomura Holdings Inc. in Singapore. The new outbreak, a worsening labor market and risks of another recession “will result in an even faster increase in household debt-to-GDP this year, weighing further on the already weak economic recovery.”

Thailand's tally of Covid cases has more than tripled since mid-December, and the Finance Ministry last week lowered its GDP forecast for the year to 2.8%, from the 4.5% it expected as recently as October.

Despite that, one reason the central bank may hesitate to ease further -- its key interest rate is already at an all-time low of 0.50% -- is “the concern that loosening interest rates will see additional borrowing from households,” HSBC Holdings Plc economist Noelan Arbis said.

Right now, the baht, the new outbreak and economic recovery are foremost on the central bank's mind, Arbis said. But “as things normalize, which we should expect later in the year or maybe next year, I believe household debt will be the key consideration for the Bank of Thailand once again.”

The government and Bank of Thailand have passed a series of stimulus and debt-relief measures to help those affected by the latest outbreak. Prime Minister Prayuth Chan-Ocha has decided to start easing some restrictions from this week to limit economic losses, even if the number of new cases remains high.

Families Struggling

Household debt has been a structural problem in Thailand for years. The household debt-to-GDP ratio has been above 70% since 2012, with tax incentives, low interest rates, low inflation and a competitive lending environment all encouraging consumers to borrow.

Nuanchan Runkun, 36, is among many Thais struggling with debts of more than 1 million baht, most incurred before the pandemic began. But Covid has worsened things.

Her family lost two-thirds of its income after Nuanchun's taxi-driver father, street-food vendor mother and her brother, a temporary office worker, lost their jobs in last year's initial outbreak. Now, more than half of her 24,000-baht monthly salary goes to pay off past debts.

“My mom and dad are still too scared to go back to work because the virus is everywhere,” said Nuanchan, an officer at the Health Ministry in Bangkok. “I've borrowed money up to the limit already to pay debts and feed the whole family. I may need to go to loan sharks soon.”

Debt Clinic

Already in 2017, the Bank of Thailand launched a program to help heavily indebted households formulate a financial plan. Defaulters who join the Debt Clinic pay interest of 4%-7% per year -- far below interest of more than 20% charged by some Thai institutions -- and are given a 10-year repayment window.

The number of cases under the clinic's responsibility more than tripled last year to 11,118, driven by the pandemic and an effort to reach more borrowers.

With many households running up debt on multiple credit cards, the total number of accounts under the clinic's supervision is expected to rise to at least 100,000 by the end of this year, said Kajorn Thanapase, director of the central bank's Financial Consumer Protection and Market Conduct Department.

“Solving household debt is the best stimulus,” Kajorn said. “Government stimulus spending won't be fully effective with a high debt burden. If we can fix the debt problem, consumption will improve without wasting any budget.”

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