There has been a swelling household debt in Thailand over time. The swelling personal loan over the past 10 years through 2019 can be largely attributed to the debts run by the existing borrowers. While this is an overall outlook, personal loan has experienced significant growth over time contributed mainly to an uptick in the debt load in 2019.

High growth of personal loan in Thailand is a contributor to the high household debt and this has been the case for many years. Personal loan growth is also a major contributor to increased non-performing loans in Thailand.   

Half of the existing personal loan borrowers’ increased debt within 2010-2019 was basically the same type of personal loan extended by the existing lenders.

Personal loan measures

Due to the increased number of people taking personal loans in Thailand, and the fact that the repayment for these types of loans has become poorer with time, the Bank of Thailand came up with measures to limit personal loan growth to try to curb the high increase in non-performing loans and the high-level of household debts.

The Bank of Thailand announced a series of measures directed at tightening personal unsecured lending to keep the personal loan growth in check. The measures include reduction of the maximum credit card interest rate from 20% to 18%, and credit limits for the credit card holders whose monthly income is less than Bt50, 000.

According to the Bank of Thailand’s 2016 Financial Stability Report, the household debt stood at 79% of gross domestic product in the 2016’s first quarter. Personal loan growth was also found to be a major contributor to this state of affair.  The report said that while debt growth was essentially slower in 2016 than it was in 2015, it actually outpaced income growth, particularly for agricultural households, low income households, and households operating medium-sized and small-sized businesses. 

The new personal loan limits were designed to discourage more leveraging from these borrowers, and to ease their debt-servicing burden. Bangkok Bank and CIMB Thai banks benefited the most from these measures because these two banks have always had the highest growth rates in personal loans. CIMB Thai, in particular, had the highest share of personal loans in its portfolio.  Therefore, the bank was a very big beneficiary of these regulations.

At the end of March 2017, credit card and personal loans account for about 9% of the Thailand’s systemwide loans. Historically, these loans have poorer asset quality comparative to secured banking loans. At the first quarter of 2017, personal loans had an NPL ration of 2.8 percent while credit card loan NPLs was 4.1 percent.

The current personal growth in Thailand

Personal loan growth was expected to slow down due to the new regulations that had been introduced. However, this has not been the case. There are very many new small businesses and in most cases, the owners of these businesses depend mainly on personal loans to keep their business afloat especially when there is need for quick capital.