Rising debt likely to keep households in the red

Economy May 31, 2014 00:00

By The Nation

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The National Credit Bureau has voiced concern that rising household debts may continue keeping people in the red, judging from the fact that most of the people who are repaying auto or personal loans earn less than Bt30,000 a month.

Surapol Opasatien, NCB chief executive officer, said household debts currently stood at 82.3 per cent of gross domestic product, the level Kasikorn Research Centre expected in 2016. He added that if the level of household debts hit 85 per cent, the state might have to take a closer look. 
Studies show that on average, a Thai person earns Bt25,405 a month and spends Bt19,259, or 75.8 per cent, on monthly expenses. Also, debts average at Bt159,492 per household, so at least Bt6,144 needs to be saved per month to cover debt payments. 
“The rate of debts to income tends to rise for those earning less than Bt10,000 per month, or about 1.6 million households,” Surapol said.
In 2009, about 45 per cent of households earning Bt10,000 were in debt, which rose to 61 per cent last year. 
The 3.7 million households earning Bt10,000-Bt30,000 per month spent up to 24 per cent of their total income covering debts in 2009, which rose to 34 per cent in 2013. Surapol said a rate of 40 per cent would still be acceptable, but if this figure kept rising, it could become a problem.
He said that amid the economic slowdown and rising household debts, financial institutions were paying more attention to indebtedness. Up to 79 financial institutions asked the NCB to provide the financial data of 16 million people in 2013, compared with requests for 6.5 million in 2012. 
Banks also check all loan accounts on a monthly basis to monitor people’s spending behaviour. Of the 71.5 million credit accounts in total, some 24 million have been closed, while “special-mention” accounts (31-90 days overdue) jumped 38 per cent from 840,000 in the first quarter of 2013 to 1.16 million in the same period this year. If this figure touches the 40-per-cent mark, then some measures will have to be taken, Surapol said.
‘Special mention’ loans 
“Problems arise mainly from auto and personal loans, not residential loans,” he said. 
The number of “special mention” loans related to auto instalment plans soared to Bt156 billion at the end of the first quarter of 2014 from Bt64.6 million in 2010.
Meanwhile, up to Bt96.2 billion of personal loans entered the “special mention” category at the end of this year’s first quarter compared with Bt13.1 billion in 2010, while the number in the residential category nearly doubled to Bt64.1 billion from Bt33.8 billion. 
For people who have a relatively high level of auto or personal loans, banks may not approve their mortgage applications, Surapol said.