The National Economic and Social Development Council (NESDC) has raised concerns about the rising trend of consumer loans, fearing that this could lead to a debt trap, a situation in which an individual, a household or even a country is forced to take new loans to repay existing debt obligations.
According to the NESDC's report on the social outlook for the third quarter, household debt as of the second quarter amounted to 16.3 trillion baht, an increase of 1.3% year-on-year, decelerating from a 2.3% rise in the previous quarter.
The debt-to-GDP ratio in the second quarter stood at 89.6%, down from 90.7% in the first quarter.
Danucha Pichayanan, secretary-general of the NESDC, said nearly all forms of household debt had either decelerated or contracted, except for personal loans.
The decline in household debt was attributed to the high debt burden combined with deteriorating loan quality, prompting financial institutions to tighten their criteria when assessing loan applications.
The quality of household loans has continued to decline, too, with outstanding personal loans overdue by more than 90 days in the National Credit Bureau database totalling 1.16 trillion baht, accounting for 8.48% of total loans in the second quarter, up from 8.01% in the first.
The NESDC highlighted key issues that require attention in addressing the household debt problem over the coming time periods including increasing consumer loan trends; more dependence on informal loans; rising mortgage defaults; and the impact of the recent floods.
Mr Danucha said personal consumer loans are likely to increase, as personal consumer loans now account for nearly one-third of total household debt.
These loans typically carry high interest rates. If households are not cautious about taking on debt or lack financial discipline, this could lead to a debt trap, he said.
Additionally, he said as financial institutions maintain stringent lending standards, households may turn to informal loans, especially borrowers who have already reached their maximum borrowing limits within the formal system. Last year, the value of informal loans was estimated at 67 billion baht.
Mr Danucha added there is also an upward trend in mortgage defaults, particularly for loans under 3 million baht, indicating that the incomes of certain households have not yet recovered, and their financial situation remains strained.
This is evident from their decision to default on home loans before other types of debt, despite housing being considered an essential asset.
More importantly, he said the impact of the floods on household liquidity and debt repayment ability requires attention.
The government may need to monitor the accessibility of relief measures for flood victims and expedite recovery efforts to restore normal conditions, enabling household incomes to recover quickly.
According to the NESDC report, personal consumer loans made up 25% of total household debt in the first quarter, rising to 27.9% in the second quarter of this year.
These loans are unsecured (without collateral), carry high interest rates and have a high default rate.
As for mortgage loan defaults, 18.2% of total mortgage loans were classified as non-performing loans in the first quarter, with this figure increasing to 23.2% in the second.
In a related development, the NESDC on Monday reported that unemployment in the third quarter of 2024 rose slightly from the same period in 2023, reaching 1.02% of the total workforce, or 410,000 individuals.
The total workforce for the quarter tallied 40.5 million in the third quarter, down by 0.1% from the corresponding quarter last year.
Meanwhile, the number of people employed stands at 40 million, a 0.1% decrease compared with the corresponding period in 2023, primarily due to a 3.4% contraction in agricultural employment, partly resulting from the flood.
In contrast, non-agricultural sectors grew by 1.4%, with the transportation and storage sector expanding the most (14%), followed by the hotel and restaurant sector (6.1%).
Meanwhile, the manufacturing sector contracted by 1.4%, particularly in the production of computer and electronic products and vehicles.
A key issue to monitor is the adaptation of the workforce to modern industries. It is expected that the new industries preparing to invest in Thailand will require 170,000 workers.