Despite the swelling household debt level, the Bank of Thailand has not planned any immediate measures to address the problem for fear of aggravating the already sluggish economy.
Advertisements for personal loans are seen in Bangkok early last month. Household debt is estimated at 80% of gross domestic product at present. PATTARAPONG CHATPATTARASILL
Implementing strict measures could further cool down the economic growth amid tepid domestic consumption and weak global demand, particularly in China, said governor Prasarn Trairatvorakul.
The move is also unnecessary since the rising household debt has not reached a critical level.
The central bank has been keeping a close watch on the issue and asked commercial banks to cut down on advertisements that could promote reckless spending, said Mr Prasarn.
The current household debt is estimated at 8 trillion baht, or 80% of gross domestic product (GDP), according to the central bank's governor.
Of the total, less than half, or 3.8 trillion baht, came from commercial bank loans. The rest was from state-owned specialised financial institutions (2 trillion baht), cooperatives and other lending sources (1 trillion baht each), he said.
Ideally, the household debt should be around 40% of GDP, said Mr Prasarn, adding that there needs to be a balance between corporate, public and household debt in order to sustain financial liquidity.
At its July meeting, the central bank's rate-setting Monetary Policy Committee decided to maintain the one-day repurchase rate at 2.5% although domestic consumption was running out of stream, saying growing worries over the rising household debt limited its scope of the rate cut.
The annualised 5.3% growth rate in the first quarter was disappointing, while economists and even the central bank and the Fiscal Policy Office had warned that the growth in the second quarter could continue to slow. The National Economic and Social Development Board is due to announce the second-quarter GDP today.
The government's domestic consumption stimulus, the tax rebate for first-time car buyers in particular, has been blamed by economists for the deteriorating debt service payment ability of people, especially those who are at the bottom of the income scale.
Commenting on the upcoming Asean Economic Community, Mr Prasarn said the integrated market can enhance free flow of capital and connectivity among regional bond and stock markets, thus facilitating greater trade and investment between Thai financial institutions and their regional counterparts.
The single market will not only link up regional financial activities, but also expand into neighbouring countries such as China and India.
Financial institutions, however, need to be cautious of a freer flow of capital because this can induce more risks and volatility to the financial system.
Thai commercial banks have to strengthen their business operations and services in preparation for fiercer competition in areas such as electronic banking and foreign exchange, he said.