Household debt a major issue if economy grows by less than 5%: KRC
Household debt would pose a serious challenge for the authorities if the economy were to grow by less than 5 per cent annually, although this is not seen as likely in the next one to two years, according to economists at Kasikorn Research Centre (KRC).
Although household debt in the first quarter stood at 77.4 per cent of gross domestic product, against just 28.8 per cent in 1997, the level is not seen as being a danger to the country within the next two years because of the current level of consumption and low interest rates, Siwat Luangsomboon, head of KRC’s money and banking research department, said yesterday.
Non-performing loans in the commercial banking system currently stand at only 2 per cent of outstanding retail lending, he said.
Despite the high level of consumer debt, the research house has not yet seen signs of mass default, the key drivers of which are higher interest rates, unemployment and living costs exceeding income.
KRC managing director Charl Kengchon said consumer debt had expanded sharply from the 1997 level because of urbanisation and the increased presence of loan sharks in the lending system, and not just because of higher spending.
However, the low unemployment rate means that people at present generally have enough income to borrow from the banking industry, he stressed.
He said economic growth of 5 per cent per year should be sufficient to accommodate consumer debt at 77-78 per cent of GDP for at least one to two years, despite the trend now being for interest rates to rise again.
However, if GDP growth falls below that level, the debt ratio could rise to 80 per cent, which would result in a serious challenge for the authorities in the medium term, he said.
Charl said the upward trend for the policy interest rate was related to the US economic situation, and that if the Federal Reserve were eventually to raise its key rate to 3 per cent from the current 0.25 per cent, the Thai policy rate could find itself as high as 3.25 per cent.
However, it would take time for the rate to reach such a level, and this would certainly not occur in the next two years, he added.
He said individual discipline was important in dealing with household debt, and borrowers should be aware of the interest-rate cycle.
