High household debts a concern, despite solid economy: BOT

 

In the first joint meeting of this year for the Bank of Thailand's two committees, they said that despite the slowdown in domestic demand, fundamentals remained healthy. The export sector is expanding, albeit at a low pace, in line with the global economic movement. Thailand's export value in the first four months of the year showed a higher growth rate than that of other countries in the region. Overall, some SMEs, particularly those in labour-intensive industries and with low profit margins, still suffer from the minimum wage hike.

They agreed that the baht appreciation in the first four months of this year was a catch-up with other regional currencies which rose largely against the US dollar last year. Meanwhile, inflows in the first months went to the bond market, particularly to long-term bonds which indicated real investment demand to some extent.

Yet, the committees concluded that capital flows would remain volatile and could affect the financial market, as a result of relaxed monetary policies in major economies as well as the different speed of economic growth across the growth. 

"The market is quite sensitive to data - like improvement in economic indicators of the US which led to the expectation of faster tapering in the quantitative easing and possible outflows," they said in a joint statement.

In this regard, Thai banks maintained solid operations, with continued growth in consumption and SME loans. Loan quality in general is of high quality, while capital fund and reserves are at a high level. This should help Thai banks withstand volitility.

Yet, they are of the opinion that the high household debts, escalating sharply in the past few years, pose a risk to financial stability and require close monitoring. Though some of the debts are to finance housing and permanent asset purchases, this could compromise household liquidity and ability to pay, particularly among low-income households.