Bank of Thailand concernced about growing private debt

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atm-machine-thailandFinancial authorities in Thailand are getting increasingly concerned about rising household debts in the nation, a regional evelopment that has already led Singapore and Malaysia to take action and make loans harder accessible for individuals.

In Thailand, low interest rates and easy credit have caused households to sink deeper into debt, with a sizeable number of them struggling with a debt service ratio of 40 per cent and above, meaning that they need to use this percentage of their disposable – not total – income to repay monthly instalments.

According to a recent survey by the Thai Chamber of Commerce, 64.5 per cent of Thai households had average debt of 188,774 baht ($4,500), up by 12 per cent from 2012.

The average monthly income Bangkok residents is around 20,000 baht, but the national average is half that, according to various salary surveys.

Overall, household debt in the first quarter of 2013 stood at 77.4 per cent of the Thai GDP, up from just 28.8 per cent in 1997, central bank figures show.

Experts say that economic growth of about 5 per cent annually should be able to absorb consumer debts of that size, but if growth falls below that threshold, the debt ratio could quickly rise and the scenario of mass defaults would become more likely.

Several key reasons have been identified to cause rising personal lending in Thailand. First of all, the booming property market has encouraged people to take more mortgages. The higher minimum wage, in effect since January 2013, has led more low-income earners to apply for consumer loans, and rising purchasing power of the middle-class have turned them into heavy credit card users. But most of all, the government’s first-car-buyer scheme, which granted tax incentives for people who bought their first car in an aim to boost industry sales – has prompted mostly young people to apply for loans which they are now struggling to repay.

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Reading Time: 2 minutes

Financial authorities in Thailand are getting increasingly concerned about rising household debts in the nation, a regional evelopment that has already led Singapore and Malaysia to take action and make loans harder accessible for individuals.

Reading Time: 2 minutes

atm-machine-thailandFinancial authorities in Thailand are getting increasingly concerned about rising household debts in the nation, a regional evelopment that has already led Singapore and Malaysia to take action and make loans harder accessible for individuals.

In Thailand, low interest rates and easy credit have caused households to sink deeper into debt, with a sizeable number of them struggling with a debt service ratio of 40 per cent and above, meaning that they need to use this percentage of their disposable – not total – income to repay monthly instalments.

According to a recent survey by the Thai Chamber of Commerce, 64.5 per cent of Thai households had average debt of 188,774 baht ($4,500), up by 12 per cent from 2012.

The average monthly income Bangkok residents is around 20,000 baht, but the national average is half that, according to various salary surveys.

Overall, household debt in the first quarter of 2013 stood at 77.4 per cent of the Thai GDP, up from just 28.8 per cent in 1997, central bank figures show.

Experts say that economic growth of about 5 per cent annually should be able to absorb consumer debts of that size, but if growth falls below that threshold, the debt ratio could quickly rise and the scenario of mass defaults would become more likely.

Several key reasons have been identified to cause rising personal lending in Thailand. First of all, the booming property market has encouraged people to take more mortgages. The higher minimum wage, in effect since January 2013, has led more low-income earners to apply for consumer loans, and rising purchasing power of the middle-class have turned them into heavy credit card users. But most of all, the government’s first-car-buyer scheme, which granted tax incentives for people who bought their first car in an aim to boost industry sales – has prompted mostly young people to apply for loans which they are now struggling to repay.

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