Industry Forecast - High Household Debt No Major Risk - JAN 2018

BMI View: We do not expect the heavily indebted nature of Thai households to pose a significant risk to financial stability or economic growth over the coming years. The surge in household credit does not appear to reflect major economic distortions, new regulations will likely limit any further increase in unsecured lending among the most vulnerable borrowers, and microeconomic reforms spearheaded by the government should ensure continued profit opportunities for the banking sector. While rising oil prices pose a risk to disposable incomes and debt repayment abilities, any sur g e in oil prices would likely be met with some form of government-led financial assistance given that elections are likely to be held over the next 12-18 months.

Thailand's household debt remains high from both a historical perspective and relative its peers, begging the question of whether there is a day of reckoning ahead for the banking system and the economy. We do not believe that the continued high level of household debt poses a risk to the economy or the stability of the banking system for three main reasons:

No Major Economic Distortions: Firstly, while total household debt continues to grow in absolute terms, it has fallen as a share of GDP to 77% in Q217 from a peak of 81.2% at the end of 2015 and overall growth in household debt is growing at its slowest pace since the Global Financial Crisis. The slowdown in credit growth in recent years has actually coincided with a pick-up in real GDP growth. Household deleveraging on its own tends not to pose major risks to real GDP growth unless it reflects an unwinding of major distortions within the economy such as speculative house price bubbles or overcapacity in a particular area, and our view is that this is not the case. We have not seen a bubble in house prices, while the autos sector is unlikely to suffer from any reduction in domestic demand given the large external market.

Benign Deleveraging
Thailand - Total Banking Sector Loans And Assets, % of GDP
BMI/Bank of Thailand

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