Credit bureau concerned over Gen-Y's high auto-loan debt

The National Credit Bureau (NCB) has warned that Generation-Y (people born from 1981 to 1996) individuals owed a considerable amount in debt. Economists have suggested that national banks' measures can only support the situation if the economy remains sluggish.

Among the points revealed by the household debt data were:

▪︎ Most of Thailand's debt is not income generating

▪︎ Vehicle and motorcycle instalment debt accounted for 12% of the total debt.

The Bank of Thailand (BOT) is tightening regulations on hire-purchase businesses.

Experts estimate that the only way to improve the debt problem is through economic growth.

Household debt in Thailand has been a persistent issue hampering the country's economy for decades, hindering growth in various sectors. According to the NCB, about 25% of the country's total population has a high debt burden.

About 57% of individuals have debts exceeding 100,000 baht/person, and 4% have debts exceeding 1 million baht/person. Upon calculation, the average debt per person in Thailand works out to 520,000 baht. However, the issue of great concern for the economy is that the majority of the debt is non-productive, which does not generate income.

Including these non-productive debts, the proportion of debt arising from vehicles and motorcycle instalments is only 12%, while credit card debt and personal loans account for 29% and 39% respectively. On the other hand, housing loans and business operations have a much lower proportion at only 4%.

The proportion of household debt in Thailand this year aligns with data compiled by the National Economic and Social Development Council (NESDB), which states that vehicle loans have continue to increased continuously in 2022, at 12.1%, 13.1%, 13.6%, and 13.7% in the first to fourth quarters, respectively.

NCB CEO Surapol Opasatien posted a social media message on June 7 regarding the issue, stating that the credit bureau system had total auto loan debt of 2.6 trillion baht.

In the first quarter of 2022, there were a total of 350,000 auto loan contracts, of which 53% belonged to Gen Y individuals. Among these contracts, 67% had loan amounts ranging from 500,000 to 2 million baht.

Furthermore, the proportion of delinquent debts exceeding 90 days is at 6.9% of the total auto-loan debt. The problem lies in the delinquencies of 1-3 instalments, which are not yet classified as bad debts but are considered deferred payments. This category has seen a significant increase since the fourth quarter of 2021 and currently stands at 190 billion baht, accounting for 7.3% of the total debt.

The Gen Y group has the highest number of accounts in arrears for more than 30 days. The proportion of accounts in arrears for more than 30 days among Gen Y is the highest, with over 600,000 accounts. Meanwhile, the number of accounts in arrears for more than 30 days among Gen X is nearly 400,000, and Baby Boomers have fewer than 100,000 accounts. The delinquency rate for auto loans among Gen Y has been continuously increasing in the 31-60 day range.

In light of these facts, Surapol stated it was not surprising that many banks were tightening vehicle loan approvals, or even rejecting loan applications. All of these issues affect car sellers.

As a result of these issues, the BOT is preparing to regulate and supervise the car and motorcycle hire-purchase business through the issuance of a Royal Decree, which may be completed and enforced on November 1 this year.

The BOT will take control of the hire-purchase business as of November 1, to ensure fairness to borrowers.

One of the reasons why the BOT needs to expedite the implementation of these regulatory measures is that the hire-purchase business plays a significant role in the overall economy of Thailand. Currently, the outstanding loans in the hire-purchase and leasing business account for 12.4% of the total household debt in Thailand, valued at 15 trillion baht, with a continuous growing trend.

Analysts agree that even though the central bank has stepped in to control the operations of these business groups, it is currently just a means to promote transparency and fairness for borrowers. It is expected that the interest rates for leasing contracts will not be further controlled beyond what the Office of the Consumer Protection Board (OCPB) announced in January, stating that the interest rates for new cars are at 10%, used cars at 15%, and motorcycles at 23%.

According to Kiatnakin Phatra Securities' chief economist, Pipat Luengnaruemitchai, vehicle NPLs is an issue of concern and is a reflection of the economy’s sluggishness.

The factors contributing to the current high proportion of debt from vehicle loans could be due to borrowers' expectations of a better economy and expanding income in the future, or even taking on loans that exceed their repayment capacity from the start.

However, the impact of Thailand's interest rate is minimal because the interest rates for vehicle loans remain unchanged.

Pipat said that the central bank can issue regulations to control these business groups. He clarified that the BOT cannot improve the situation, but can only prevent the situation from worsening.

If the Thai economy can grow significantly under the next government, this problem will improve as consumers will have higher income to pay off debts, Pipat added.