Rising household debt and non-performing loans (NPLs) are going to hurt listed companies in leasing, hire-purchase and finance because they are drag on the economy and lower consumer purchasing power, says an analyst.
Jitipol Puksamatanan, head of macro and wealth research at CGS-CIMB Securities, said Thai household debt has grown over the years, spurred by government policies such as the first car buyer and first home schemes.
"By offering consumer incentives, this led to a long-term problem worsening household debt, with many loans susceptible to becoming NPLs. This problem may affect purchasing power and none of the political parties have introduced clear policies on how to reduce household debt," he said.
Debt servicing is going to decline as interest rates rise. Unsecured loans, in particular, carry high risks, said Mr Jitipol.
"The problem of high household debt may affect personal loans, but financial institutions are well aware of this problem. They may ask for more collateral to back loans," he said.
The sectors affected by high household debt include leasing, hire-purchase and non-bank businesses. Investors are recommended to invest in companies with strong fundamentals, low levels of NPLs and stable financial positions, Mr Jitipol said.
NPLs in the car hire-purchase sector have been increasing since the debt moratorium expired this year, causing an increase in repossessions. Some 80,000-90,000 cars were confiscated and put up for auction during the first five months this year, up 3-5% year-on-year.
The Bank of Thailand is preparing to regulate car and motorcycle leasing to strengthen consumer protection and tackle household debt starting in November. The Finance Ministry reported transactions in the auto leasing sector account for 12.4% of total household debts and the number is rising.
CGS-CIMB said the regulation will be slightly negative for finance and leasing companies listed on the Stock Exchange of Thailand, though the impact will be limited for Ngern Tid Lor (TIDLOR) and Muangthai Capital (MTC) as their hire-purchase portfolio is only 10% and 5%, respectively, compared to Srisawad Corp, which has a hire-purchase portfolio of nearly 40%. The brokerage recommends investing in TIDLOR because it has stronger asset quality controls than MTC.