DEBT CRISIS: Heartbreak in Thailand. A young husband mourns his wife’s tragic suicide, highlighting the nation’s crippling household debt. As PM Paetongtarn pledges action, informal lending and rising loan defaults threaten economic stability. Will help come too late?
The harrowing pain of a young husband who found his wife dead in her car on Saturday morning is the price Thailand is paying on a personal level for the country’s massive and growing household debt problem. At the same time, on a macro level, the problem threatens a potential crisis at any moment, while also acting as a constant impediment to economic growth. PM Paetongtarn Shinawatra in September promised a government programme to deal with the issue. Nonetheless, every day the problem is growing more acute and cries out for radical action. Certainly, debt moratoriums, government assistance to banks in restructuring, and significantly, an effort to assist those in debt to informal lenders are thought to be part of the plan.
Last week, Thailand’s central bank lowered its base interest rate by 25 basis points. It was welcomed by the government and business leaders. On one hand, the cut will free up cash among large borrowers who can service their debt. However, on the other hand, for hard-pressed borrowers, it will make little difference.
Certainly, it will not help the country’s chronic household debt problem. Indeed, this is a country where figures just released by the National Credit Bureau (NCB) show the debt load is still rising.
Government plans to address the growing debt crisis but informal lending adds to the risks for the vulnerable
In brief, the government of Paetongtarn Shinawatra is planning action. Undoubtedly, the government is aware of the scale of both household debt and, at the same time, sky-high business sector debt.
However, for less well-off Thais, particularly those on a growing list with poor credit history, the picture is dark. The end result is often informal lending from violent gangsters—loan sharks who terrify, humiliate, and make those in their thrall wish they were never born.
Interest rates with these types of people can be as high as 20% per month or even higher on daily loans. On Saturday morning, in the Yan Nawa District of Bangkok, police at Bang Phong Phang Police Station were called to bear witness to a tragedy.
Officers, led by Police Lieutenant Natthaphong Ajarasing, the deputy chief, saw firsthand the devastation being wrought by Thailand’s debt crisis.
Beside a gold car on Soi Ninse 32 sat a husband crying uncontrollably. Inside the car was a young woman—a popular and capable one who regularly travelled to the provinces to sell insurance.
Personal tragedy highlights the severe emotional toll of household debt in Thailand’s real world
She had set up a charcoal-burning pan and taken her own life while lying in the passenger seat. A reporter arrived at the scene with the police. He delicately asked her husband what had happened.
Between tears, the husband explained that, in the previous few days, he discovered through LINE messages that his wife had accumulated hundreds of thousands of baht in debt.
At length, they had quarrelled heavily over the affair. Afterwards, when his wife disappeared, he thought she had gone to work. Sadly, she had gone to die.
Last year, Thailand’s suicide rate hit 7.9 per 100,000 people. The number is rising.
However, it is not yet as high as the 8.59 per 100,000 it reached during the 1997-1998 Asian Financial Crisis, or Tom Yum Kung Crisis.
Indeed, that financial crisis started in Thailand when the central bank gave up defending the baht. It later depreciated severely, prompting a crisis throughout Southeast Asia.
Thailand’s financial system remains robust but household debt continues to rise to unsustainable levels
Today, the baht is robustly strong, as indeed is the financial system. In particular, this is thanks to an independent Bank of Thailand, enshrined by law in 2008.
It is also due to prudent management by the bankng sector in addition to a wider margin of profits for Thai banks. In short, they are financially resilient as borrowing costs are high.
However, the same cannot be said for the population and the small business sector. Certainly, public debt is also rising, but at 66% of GDP, it is well in line with regional peers and looks positively healthy by Western norms.
However, the country’s level of household debt continues to rise. This comes despite a year of credit restraint imposed by the central bank. Nevertheless, the latest figures up to 2023 show the average Thai household owes ฿606,378.
Furthermore, it is estimated conservatively that the debt incurred to private lenders, including loan sharks, is something like 20% of GDP. In short, households in Thailand are labouring under a debt load of 110% of GDP.
It is certainly out of kilter with regional norms and unsustainable by world standards for a still-developing economy.
Despite efforts, rising debt continues as small businesses and households struggle under the burden
On Saturday, the National Credit Bureau (NCB), an agency that tells it like it is, had some foreboding news. The general manager of the agency, Mr. Surapol Opasathian, revealed that consumer loans had risen in the last year. At length, this is shocking news given the block put on lending this year, with banks reporting lower debt book values.
It comes in addition to the Office of Industrial Economics (OIE), which has also revealed that the small business sector is also heavily indebted to the tune of 90% of GDP. In the meantime, Thailand’s banks have cut business loans this year.
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Nevertheless, according to the National Credit Bureau (NCB), the amount of consumer loans alone in the financial system stands at ฿13.63 trillion. This is up 0.8% compared to 2023. Certainly, car loans fell by 4.6%, but housing loans expanded by 3.2%, and personal loans advanced by 2.3%.
National Credit Bureau reveals rising debt is a threat to Thailand’s economy as defaults increase
Notably, the data shown by the National Credit Bureau (NCB) only applies to retail lenders under its remit and does not reflect overall household borrowing from all financial institutions under the law.
Of course, in addition, it does not account for informal debt and lending. However, it does indicate broad trends when it comes to bank borrowing.
In the meantime, the Thai economy in 2024 is expected to be worth ฿18.14 trillion. Significantly, Mr. Surapol highlighted that debts overdue by 90 days in the system are rising. Presently, they stand at ฿1.18 trillion. That is, in effect, 13.3% ahead of last year. In a word, unsustainable.
That is without prompting either a crisis or intervention.
Thailand’s non-performing loans rise, heightening fears of a worsening financial crisis
Indeed, the situation is worsening. The non-performing loans level increased by 0.4% in August compared to July. In the meantime, non-performing loan rates for homes or property have skyrocketed by 26.3%.
At the same time, car defaults, not surprisingly, have jumped by 28.6%. Then there are credit cards, with non-performing accounts rising by 17.9%. In short, the situation is worsening.
Therefore, the government has a problem. Certainly, the household debt problem is on the radar of PM Paetongtarn Shinawatra’s government. However, the fear is that the chronic issue of household debt may soon become a crisis.
Undoubtedly, Bank of Thailand Governor Sethaput Suthiwartnarueput has flagged the issue since taking up his role. At that time, he described it rather like a chronic disease, such as diabetes.
However, as any doctor will explain, diabetes, if not treated properly, will at length lead to stroke or serious heart complaints. That is the prospect facing the Ministry of Finance and the central bank.
World Bank economist with responsibility for Thailand, Mr. Kiatipong Ariyapruchya, explains the situation. “Many firms and households in the sectors hit hard by the pandemic remain vulnerable. This has implications on macroeconomic and financial stability.”
Thailand’s economic recovery hindered by pandemic and worsening debt crisis impacting growth
Certainly, the pandemic crisis made Thailand’s household debt situation unsustainable. Basically, it stymied the country’s economy and economic growth prospects.
In truth, Thailand has not yet recovered from that setback. This year, it is struggling to grow by 2.5-2.6%, while its peers achieve at least double that. In the meantime, huge swathes of workers and households in Thailand simply cannot pay their way.
Debt is the only recourse, and as we see, it comes with devastating outcomes. In the meantime, Thailand’s credit laws and environment mean that debts are pursued for decades against small creditors.
There is no remorse despite efforts to reform the system. Indeed, at this time, the household debt load is severely impeding the economy and livelihood of small traders and service providers. It is a sort of vicious system in a country where wages are still very low.
Growing debt and lack of clear solutions put Thailand’s private sector spending and growth at risk
“An elevated level of household debt in Thailand is concerning as it could suppress private-sector spending and weigh on economic growth,” Mr. Kiatipong Ariyapruchya says.
Despite being aware of the problem, Thailand’s planners are not clear on how to react. The Thaksin-era policies of stimulus and transferring money to community projects are no longer enough.
In short, this is a changed world with a significantly older population and an economy altered by the internet. Certainly, also, Thailand’s foreign tourism industry has declined, as has its manufacturing economy. Both of these accounted for up to 70% of GDP.
After that, the country is suffering from an education defecit in addition to rampant and unbridled corruption. These are significant impediments to attracting substantial increases in foreign investment.
Handouts and moratoriums are temporary fixes but do not address root causes of debt crisis in Thailand
Meanwhile, handouts or free money and debt moratoriums cannot be seen as a sustainable answer.
“The government always gives bailouts like debt moratoriums and cash handouts to people, so they’re not trained to help themselves. It can lead to moral hazard and more debt creation. The easy access to illegal lending is also a factor. When people fail to service debt and resort to easy solutions, what they get is more debt,” explained Professor Nattavudh Powdthavee from Singapore’s Nanyang Technological University when speaking with Bloomberg.
Former Prime Minister Thaksin Shinawatra is undeniably Thailand’s greatest political figure in the last few decades. In addition, he is also credited as a dynamic businessman who makes things happen.
At length, he was brought back from exile last year in an unlikely deal, which saw conservative forces and his Pheu Thai Party reach a compromise. Presently, the compromise is unravelling, leaving Thailand with yet another problem.
That is political instability and the rising prospect of another coup d’état, which is how Thailand resolves such impasses.
In the meantime, a bold initiative that assists Thailand’s financial institutions in restructuring chronic and intractable debt and helps relieve those under the yoke of massive debt burdens would be welcomed.
Certainly, reports that informal debt and lending will also be part of the solution are encouraging. Indeed confidence and optimism are valuable qualities at this time. Especially when facing the evil effects of prolonged and unsustainable debt.
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Further reading:
Srettha’s crisis is not just an economic one, it is a ‘3D debt crisis’ that is strangling GDP growth
Zombie Thai firms holding back economic growth as they struggle just to pay interest on bank debt
Incoherent government economic policy clashes with Bank of Thailand’s efforts to rein in debt
Economy is in troubled waters with fears for both exports and foreign tourism as 2023 winds down
Thailand faces an economic future of low growth despite Srettha’s plans because of a darker world
Another dip for the baht or are economic danger signals flashing for both Thailand and the world?
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