Increasing debt platforms to blame for dips in auto and housing sales
Banks introduce stricter lending protocols and focus on debt collection as household debt continues to soar
The high level of household debt is having a severe effect on both the auto and housing sectors, as banks revise their loan criteria and focus more on collecting money owed.
Data from the National Credit Bureau (NCB) indicate that as of the end of Q1 2024, the total household debt in Thailand stood at 1.09 trillion baht, with auto loan NPLs amounting to 238 billion baht, a 32% increase compared to the same period last year. Delinquent loans overdue for no more than 90 days total 200 billion baht while another 39 billion baht in auto loans are under restructuring.
The majority of NPLs and delinquent loans come from Generation Y, accounting for 415,000 auto loan NPL contracts worth 28 billion baht, and an additional 298,000 delinquent contracts amounting to 114 billion baht. Combined, these groups have 713,000 accounts that are either NPLs or delinquent, representing a total loan value of 240 billion baht.
Techin Dulyarittirong, head of Market Development and Auto Loan Relationship Management at Kiatnakin Phatra Bank, noted that the overall automobile market is continuing to slow, with new car sales in Q1 2024 standing at 160,000 units, a decrease of 24.6% compared to the same period last year. If this trend continues, the annual car market could slow down further from last year’s 775 billion baht in new car sales.
“The main reasons are the high level of household debt, especially the increasing NPLs in auto loans. The slow economic recovery in Thailand this year has affected the debt repayment capabilities of borrowers, increasing the risk of NPLs. Moreover, the new car market has been experiencing intense competition in special interest rates, and in the past 2-3 months, the prices of electric vehicles have been consistently decreasing. This situation means that when customers cannot afford to repay their loans, the repossessed cars are sold at lower prices, which is not cost-effective for lenders,” Techin said.
Wichai Suphasathitkul, CEO of Heng Leasing and Capital Public Company Limited, stated that due to the uncertain economic situation, the company is cautious in extending auto loans at this time. The company’s auto loan disbursements in Q1 were 15.183 billion baht, and it is expected to maintain this level throughout the year, with a slight increase to 15.2 billion baht, up 0.6% from last year’s 15.1 billion baht. The focus will be on debt collection and prudent loan approvals, with stricter assessments of the customers’ financial capacity and the quality of collateral to mitigate the impact of declining used car prices.
The bleak financial picture is affecting the property market too. Surapol Opasatien, general manager of the National Credit Bureau, said that home loan approvals in Q1 2024 saw a higher rejection rate, with only 50 out of 100 applications being approved due to stricter lending criteria by banks. The total value of non-performing home loans reached 200 billion baht, an 18% increase compared to the same period last year, accounting for 20% of all NPLs under the Credit Bureau.
Home loan delinquencies (SM) are also rising, currently standing at 180 billion baht, a 15% increase, with 120 billion baht of this amount under state bank management. Again, Gen Y holds a significant portion of these loans, with 83,281 NPL contracts worth 124 billion baht and 76,276 SM contracts worth 118 billion baht, accounting for over 50% of all non-performing home loans.
Payong Srivanich, CEO of Krungthai Bank and president of the Thai Bankers’ Association, acknowledged that commercial banks are becoming more cautious in extending loans, especially given the current economic conditions and rising household debt. He emphasised the need for responsible and fair lending practices, balancing demand and supply without overburdening borrowers with additional debt.
The increasing rejection rates for middle and upper-income group loans highlight the impact of the high proportion of informal economic activity, estimated at 48-50%. This structure, coupled with limited income, continues to affect SMEs and other sectors, underscoring the need for measures to bring more SMEs into the formal economy.
