Thailand’s National Credit Bureau Warns Over US$16 Billion in Mortgage Defaults

Thailand’s National Credit Bureau has highlighted concerns about the possibility of approximately US$16 billion in housing loans becoming mortgage defaults, urging the government to intervene as soon as possible to help the borrowers.

Surapol Opasatien, CEO of the National Credit Bureau, stated that there are concerns that US$16 billion in mortgages defaults may become non-performing loans (NPLs) because many mortgage borrowers, who are mostly low and middle-income earners who purchased homes for US$83,000 (3 million baht) or less, are behind on 1-2 monthly mortgage payments.

Unless these debtors receive immediate assistance from the government in the form of debt refinancing, he cautioned that these loans could become mortgage defaults, which would have a significant impact on the Thai economy.

According to the National Credit Bureau, Thailand’s household debt was at 16.2 trillion baht at the end of last year, accounting for 91% of GDP, posing a huge concern.

NPLs total US$27.8 Billion, with US$5 Billion (180 billion baht) in home loans, US$6.4 billion (230 billion baht) in auto loans, US$7.2 billion (260 billion baht) in personal loans, and the remainder in credit card loans.

Surapong Paisitpattanapong, spokesman for the automobile industry at the Federation of Thai Industries, stated that car sales in January this year fell 12.46% compared to the same period last year.

Owing primarily to rising household debt and commercial banks tightening loan extension criteria, adding that loan rejections for car loans have increased to 50% of applications. Household debt is a long-standing issue in Thailand and a significant weakness for the economy.

According to the most recent data, while household debt in Thailand has decreased slightly in step with the ongoing economic recovery, people continue to incur large amounts of unproductive loans that generate no future income or wealth to fuel present consumption.

Mortgage Defaults 2023

Furthermore, credit quality for some borrowers, particularly those affected by the COVID-19 pandemic, has not improved considerably. The aforementioned issues have a negative impact on Thailand’s financial stability and offer an essential policy challenge for maintaining it.

Thailand’s household debt increased by 3.6% in the second quarter of this year, totaling 16.07 trillion baht, or 90.7% of the country’s GDP. The rise in debt is primarily attributable to real estate acquisitions and personal consumption.

Approximately 30% of people with credit card and personal loan debt have more than four cards or accounts, with credit limits ranging from 10 to 25 times their monthly income, which surpasses the statutory requirement in some other nations.

As a result, borrowers spend more than half of their monthly income on debt servicing, with credit cards and personal loans accounting for more than 50%. These loans contain high interest rates and short repayment terms, resulting in a large monthly debt load and a risk of default.

This is obvious from the significant number of loan accounts classed as non-performing loans, with credit cards and personal loans accounting for more than 60%.

Household Debt to GDP

Thailand is facing a significant issue, with household debt reaching a record high of 91.4% of GDP in the third quarter of 2023, according to the Bank of Thailand. This means that the average Thai household owes more than nine-tenths of what the country generates each year.

The COVID-19 pandemic’s extended economic stagnation, low-income growth, high living costs, and easy access to borrowing are the primary causes of this frightening predicament.

Many Thai households have turned to borrowing money to cover their daily needs, medical bills, education costs, and company losses. However, this has raised their financial load while decreasing their savings.

The high level of household debt threatens the country’s economic recovery and financial stability. It reduces consumers’ ability to spend and invest, influencing domestic demand and GDP. It also puts people and financial institutions at danger of default and insolvency, which could result in a systemic collapse.