Low interest rates for an extended period and easy credit are encouraging Thai households to sink deeper into debt. Households are vulnerable to the interest rate hike cycle and economic downturn environments, as most of their household debt service ratio is reaching or even exceeds the 40% threshold.
An advertisement for personal loans is seen on a telephone booth in Bangkok on Saturday. The Thai Financial Planners Association has urged monthly debt payments be no more than 36% of disposable income. PATTARAPONG CHATPATTARASILL
The household debt service ratio is the percentage of monthly debt payments to gross disposable income. To service debt comfortably even amid financial hardship and in order to qualify for borrowing loans from financial institutions, monthly debt payment obligations should not exceed 40% of one's regular monthly disposable income.
But amid growing economic uncertainty, the Thai Financial Planners Association suggests people be more conservative by capping the maximum debt service ratio at 36%.
The Bank of Thailand has been sounding alarm bells about swelling household debt, and borrowers at the bottom end of the income scale _ those making less than 15,000 baht a month _ are the biggest concern. But people are still keen on borrowing.
Puntakij Sirisansern, 36, a bus driver for a small garment company, is typical of low-income earners who are saddled with a big debt load. He and his wife earn a combined 25,000 to 26,000 baht a month, and his family, which includes a four-year-old, has hardly anything left for savings at the end of each month.
He is seeking either a personal or a hire purchase loan to buy a new mobile worth 6,000 to 7,000 baht despite to date having paid only two instalments of 4,080 baht a month on a 12-month motorcycle loan. His family also pays 2,500 baht a month for housing rent.
"A motorcycle is essential. I drive it to work and elsewhere. That's my biggest debt now," said Mr Puntakij.
And it is not just low-paid workers who get caught on the debt spiral. Middle-class professionals also risk becoming mired in the debt trap.
Suphot Paisarnkij, 33, an employee at an IT outsourcing company, and his wife now pay 26,000 baht a month on their mortgage and 7,600 baht a month on a car loan out of a combined monthly income of about 80,000 baht.
He bought a new car worth 523,000 baht in late 2011, paying 40% as a down payment and taking out a four-year loan for the rest, and a new 3.8-million-baht house this year with no down payment.
"I already planned to buy a car, but the government's tax rebate scheme for first-time car buyers encouraged me to speed up the purchase," he said.
Travelling expenses before and after buying the car are about the same, as he and his wife frequently took a taxi home after finishing working late at night before they had their own wheels.
About 1.2 million new cars were registered at the Excise Department for the tax rebate under the government's first-time car buyer programme. The scheme, while helping to boost domestic consumption and new-car sales, has also been blamed for being a major cause of rising household debt.
Prasarn Trairatvorakul, governor of the Bank of Thailand, last month expressed concern about household debt increasing so rapidly.
A recent University of the Thai Chamber of Commerce survey of 1,200 respondents regarding household debt also underscored the central bank's worries. Some 64.5% had average household debt of 188,774 baht, up by 12% from a year before and 147,542 baht in 2009.
Mr Suphot said due to concerns about his ability to afford his mortgage payments, he and his wife have tightened their expenses by not dining out as often as they used to.
"I don't want to run up any more debt if it's not necessary," he said.
But at least the central bank's warning has paid off in the case of one unnamed employee at a media company who seems financially precocious.
She said she bought a 550,000-baht new car last month with a 60-month car loan after she was confident of still having 12,000 a month left for savings after expenses and loan payment.
"I won't purchase my own home as long as my monthly salary remains less than 70,000 baht a month," said the employee, who is single.
She added that she pays 4,000 baht a month in rent for her apartment, not counting utilities.