Thai households are among the most indebted in Asia, and the official figures understate the problem due to the large sums also owed to loan sharks — estimated at as much as 2.4 trillion baht ($74 billion).
When the army seized power on May 22 it justified the coup partly by the need to fix an economy driven to the brink of recession by seven months of political turmoil. But the growing debt problem leaves the central bank little scope to cut rates to support growth, while exports remain sluggish.
Banks have tightened their lending criteria as an increasing number of loans have soured, so many Thais have turned to loan sharks.
"I lend to small vendors or workers — quick money at a rate of 10% per month, without collateral. It's that easy," said Aoy, giving just her nickname.
Her eye-watering interest rate was normal in the business, she said. Banks charge a maximum 20% a year on credit cards and 28% for personal loans.
Official figures from the Bank of Thailand put household debt at 82.3% of gross domestic product at the end of 2013, up from 77.1% in 2012.
At 9.79 trillion baht at the end of 2013, the household debt was 76% higher than in 2009, driven up by easy monetary policy and government stimulus measures that led consumers to splurge on cars, houses and electronic goods.
Household debt includes loans from several sources, such as banks, credit-card firms, insurance companies and pawnshops.
The junta has said it will tackle the problem of loan sharks, but has not said how. The Government Housing Bank is to provide low-cost home loans until the end of the year, but only to customers with a good debt service record.No downpayment? no problem...
Cash is widely available on the internet.
One advertiser calling herself Ree offers 24,000 baht in return for a new Honda Click motorbike she shows people how to buy with the help of a loan from a mainstream finance company.
"You go get a new motorcycle and I'll buy it. No down payment? No problem, I'll pay that," she told Reuters. She gets a bike worth twice what she has paid and the punters get quick cash — plus a big loan they can ill-afford to pay off.
There are no official statistics on lending by loan sharks, but the University of the Thai Chamber of Commerce has estimated total informal loans at 1.2 to 2.4 trillion baht.
Consumption is pivotal in Thailand, accounting for half of Southeast Asia's second-largest economy. Consumer confidence improved after the coup but remains fragile, so spending will probably not pick up quickly, given the debt burden.
"High household debt can't be cut very quickly," said Siri Ganjarerndee, an independent member of the central bank's monetary policy committee, adding the problem might be eased if the new government was able to boost growth and generate income.
The junta took less than a month to pay 92.4 billion baht in arrears owed by the state to rice farmers, many of whom had turned to moneylenders to survive during the political turmoil from November last year.
But central bank governor Prasarn Trairatvorakul says consumption will remain sluggish. "We won't see high household spending yet this year because of old debt."
Pimonwan Mahujchariyawong, a senior economist with Kasikorn Research Center, says that will hurt economic growth. "Household debt has already been a drag on consumption. Even if we didn't have political problems, consumption would still grow below its potential. It will limit economic recovery."Growth forecast slashed
Though the economy is expected to improve later this year, growth in 2014 is likely be the lowest since 2011, when the country suffered devastating floods.
On June 18, the central bank slashed its forecast for this year to 1.5% from 2.7%, with GDP probably contracting 0.5% in the first half from a year earlier before growing in a range between 3.4% and 3.5% in the second half.
Its main interest rate has been at 2% since March and most economists expect no change this year, given high household debt and inflation at a 14-month high of 2.6%.
Despite the contraction in the economy, the banking sector's consumer credit rose 10.7% in the first quarter from a year before, although it has slowed steadily since a 21.6% jump in the final three months of 2012, when a state car subsidy scheme ended.
About 1.25 million of the record 1.43 million vehicles sold that year were bought with the help of the subsidy.
As the economy slows, debt insolvency tends to grow. Even so, total non-performing loans (NPLs) in the banking sector were low at 2.3% of lending in March, up slightly from 2.2% at the end of 2013.
But NPLs in the consumer credit category jumped 31.3% in value in the first quarter from a year earlier, compared with a 20.5% rise in 2012 and a drop of 18.9% in 2010, when the economy grew 7.8%, according to the NESDB state planning agency.
Average household income in Thailand rose 4.1% in 2013 to 25,194 baht per month, trailing a 4.7% increase in household expenditure, the agency said.
Nomura estimated in a report last month that households spend a third of their disposable income on debt servicing.
Wassana Somboon, a 35-year-old housewife and mother of two, is permanently in debt to loan sharks.
"I borrow 10,000 baht at a time," she said. "Once it is repaid, I take out a new loan and I never get out of debt. We don't have any money. What else can we do?"