Household debt remains a major problem


Household debt remains a major problem

Private consumption is likely to remain weak for some time, according to HSBC’s Thailand economist, due to the continued high level of household debt. This high level is expected to reach its peak in the final quarter of this year, which will likely mean than consumption will stay muted.


HSBC is quoted as saying that it had assessed its forecasts of GDP growth for the next two years and then looked at what it considered was a conservative six percent and 6.2 percent household loan growth during both 2016 and 2017 and had concluded the household debt-to-GDP ratio will be likely to peak at 83.5 percent in the fourth quarter of 2016.


That said, the risks to Thailand’s financial stability are relatively contained because commercial banks’ are currently maintaining a high buffer against delinquent loans.


Overall, commercial banks have a capital adequacy ratio of 17.4 percent, which is far higher than the statutory level of 8.5 percent. Loan loss provisions are presently at 156 percent of the required level.


This will mean private consumption will stay weak for some time to come and therefore public investment, especially on infrastructure projects, will remain the key to economic growth and recovery.


Household debt rose to 81.1 percent of GDP in the third quarter of 2015, or 10.8 trillion baht, a percentage rise of 0.5 percent, according to the Bank of Thailand.


HSBC has forecast nominal GDP growth (that is, a figure which is not adjusted for inflation) of 5.2 percent for 2016 and 6.3 percent for 2017. This would mean, once adjusted, that GDP growth will be 3.1 and 3.4 percent respectively.


Given the weak pace of income growth it is expected that household debt will continue to remain high over at least the next two years, and this will impact overall economic growth.


Farm income is expected to remain weak due to the steep decline in commodity prices as well as the protracted drought.


Non-farm income is also expected to remain sluggish, with wages growth sluggish, a situation which has prevailed in even the most developed economies (US, Britain, Australia and the like) over recent years.


Elsewhere, a former secretary-general of the United Nations Conference on Trade and Development warned that demand-boosting policies were a threat to the Thai economy as they led to an increase in household debt.


Gross non-performing loans rose to 2.55 percent in 2015, with an outstanding value of 388 billion baht. This was an increase of 0.40 percent on the 2014 level, which was worth 277 billion baht, according to the Bank of Thailand.