2 weeks Ago
When I started writing this article last week, I said to myself: "This might be another article no one will believe." Financial crisis? You must be out of your mind. The situation seems to be under control and it is likely to improve in 2025.
After all, the Ministry of Finance has projected GDP growth for this year to be 2.5% to 3.5%, with a base case of 3.
0%. No crisis can happen under such healthy growth, surely. Readers might not believe me, but the Thai stock market sides with me in believing that economic risk is a concern regardless of the government's GDP figures.
Three years ago, the SET index was above the 1,700 level but it recently hovered around the 1,300 level. The index could nose dive to below 1,000 if what I am about to say in this article becomes reality. In fact, 2025 is not only the Year of the Snake (according to the Chinese zodiac) but also the Year of Double Debt Jeopardy.
Thai bad debt (NPLs), which is already at a serious level, could double this year. The NPL situation was so bad in 2024 that it caused a private credit contraction of 26 billion baht compared to an expansion of 732 billion baht the year before. The double debt jeopardy will most likely result in a more severe credit contraction this year.
The first part of this is the level of recurring household debt's NPLs. So far, 1.7 trillion baht of household debt has been restructured.
With the soft economies of 2024, a large percentage of restructured debts will now return as new NPLs owing to the lower than expected debtor's income. I have an example. One debtor's monthly payment was reduced from 9,000 baht to 2,000 baht to fit his ability to pay for a full year under the restructuring agreement with a bank in late 2023.
He was able to fulfil his lowered payment obligation until now, when the monthly payment bounces back to 9,000 baht per month. The experience from debt restructuring after the financial crisis of 1997 shows that 41% of restructured debts returned as NPLs. A similar percentage of recurring NPLs could happen in 2025, which means 680 billion baht of NPLs would be added to the current outstanding NPLs of 1.
2 trillion baht. The other part is the NPLs linked to quickly rising corporate debt. Until now, corporate borrowers have been well behaved.
According to a report by the Bank of Thailand (BoT), corporate NPLs outstanding (as of Q3 2024) amounted to 343 billion baht, or only 2.4% of the corporate debt portfolio. This relatively small level of corporate debt NPLs causes policy makers to focus on household debt, which is at an unsustainable level of 90% of GDP.
Ignorantly, policy makers fail to realise that Thai corporate debt is at a higher risk level of 129% of GDP. Another mega-debt bomb is waiting to detonate. Thai corporates do not only borrow from domestic banks (that level is now about 14.
3 trillion baht). They have also borrowed 4.4 trillion baht from foreign sources and issued 4.
6 trillion baht of debt securities (mostly debentures). In total, their debt burden is 23.3 trillion baht, or 129.
4% of GDP. Given this high level of borrowing, Thai corporates are susceptible to credit defaults when the economy slows. The problem is the economy has been slowing since the end of the Covid-19 years.
How slow? Forget about the government's GDP figures. Let's look at a real example of one of Thailand's best-known real-estate developers. The company even once owned a commercial bank bearing its name.
In 2023, the company developed 14 projects with an investment cost of 35 billion baht. Feeling the worsening credit situation, the developed projects were cut to 11, costing 30 billion baht, for 2024. Ignoring the fact that the government expects a 3.
0% growth rate this year, the company further trimmed its new projects to four for 2025. The investment cost is set at 10 billion baht, which is the lowest in 20 years. The situation is quite tight for the entire business sector, not just for real-estate developers.
I will not deal with domestic and foreign bank's corporate loans. They are private institutions and can manage the problems by themselves, with assistance from their respective central banks. I will focus on the 4.
6 trillion baht of private debt securities, which is funded by the general public from their life-savings. Every year, about 900 billion baht of securities mature and need to be renewed. For 2025, the exact amount is 893.
275 million baht. Therefore, about 900 billion baht of new debt securities would be issued to replace the matured securities plus a few hundred billion baht more for new financing. The attached table shows the changes in Thai private debt securities subscriptions from 2020 to November 2024.
This is an important note. The figure for 2024 is only for January to November. The BoT, for some unknown reason, decided to discontinue this series.
The data file is no longer posted on their website. It is a good thing I have a copy of the last file before the series was removed. Suspicious minds may wonder whether the numbers are getting too embarrassing to report.
.. A dead elephant can't be completely covered by a lotus leaf.
That's all I will say. With a 20-year record of private debt securities data, there are only two years where newly issued securities are not fully subscribed. They are 2020 (a Covid year) and 2024 (a year that saw 2.
5% GDP growth, according to the government). There was a concern that newly issued private debt securities would not be fully subscribed due to pandemic-related fears in 2020. Thus, the Bond Stabilisation Fund of 400 billion baht was established.
However, the fund was never utilised as the subscription shortage was only 94 billion baht, which domestic banks could easily handle. Surprisingly (or not), amid economic recoveries there was an historic subscription shortage of 217 billion baht in 2024 (up to November, with the reason explained). Luckily, Thai corporates were able to borrow 270 billion baht from abroad to cover such a shortage.
There would be no such luck in 2025 as credit limits could be reached and foreign banks become more cautious, especially under the threat of a global trade war. Based on a straight-line projection of the data, the funding shortage of private debt securities in 2025 would be 427.3 billion baht.
(I am beginning to see why the data series was discontinued.) The funding shortage would lead to a widespread default of debt securities, no different from the sub-prime debt crisis in the US in 2008. More dangerously, the remaining non-matured debt securities of 3.
7 trillion baht would also be unloaded by concerned investors. After reading this article, and considering the data and the current economic conditions, readers must decide for themselves if this will be another article that no one believes. Chartchai Parasuk, PhD, is a freelance economist.
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