Thailand's credit binge: now for the hangover

[buksida]

A Thai saying cautions against “borrowing from grandmother to buy her sweets”. But so heavily have the country’s households borrowed that buying confectionary is the least of their worries. One of the biggest consumer credit binges in the emerging world is now showing signs of unravelling, with potentially severe consequences for Thailand’s retail sector.

How severe will the hangover be for southeast Asia’s second largest economy? This depends in part on whether the economy can recover its mojo and grow its way to deleveraging. Since 2006, Thai GDP has managed only about half the pace of the Indonesian, Malaysian and Philippine economies.

But even if a modest growth resurgence does transpire, Thailand appears headed for a painful mix of depressed consumer spending and rising consumer debt. According to Asean Confidential, an FT research service on southeast Asia, Thai household debt will approach or exceed 100 per cent of GDP by 2020 under likely macroeconomic scenarios – and this does not include large amounts of borrowing from illegal money lenders by the poorest Thais.

A recent trend may signal peril ahead. Household debt levels are still rising (to an estimated 86 per cent of GDP, up from 61 per cent in 2009), but private consumption growth has started to ease.

This is significant because it suggests that families are having to deploy so much of their income to repay debts that they have less left over for retail indulgences. Indeed, in January and February personal spending fell on a month on month basis by 13 per cent and 8.5 per cent respectively, a bigger margin than seen at any time during the 2008/09 financial crisis or the 1997/98 Asian crisis, according Bank of Thailand statistics.

Some see dire consequences. Piyabutr Cholvijarn, president of the Kenan Institute Asia and director of the Thai Chamber of Commerce, warned in March that if the household debt issue was left unaddressed, a crisis worse than the 1997 meltdown could ensue.

However, stock market investors appear unperturbed for now, bidding up the Bangkok stock index by 4.2 per cent since the start of the year. A 25 basis point cut in the Bank of Thailand’s policy interest rate to 1.75 per cent in March is seen as too minor to meaningfully alleviate household debt burdens.

Asean Confidential’s surveys showed a slide in consumer confidence across the board during the first quarter in Thailand, with discretionary spending intentions and consumer borrowing plans both easing, along with a slump in people’s confidence over the health of the broader economy. Meanwhile, headline inflation has turned negative, to -0.57 per cent in March, exacerbating debt service costs.

Other risks complicate the outlook. Net capital outflows, which pummelled the country for 20 consecutive quarters from the onset of the Asian financial crisis in mid-1997, are again becoming a more common feature, hitting a total of $20.3bn in the second half of last year.

If the US Federal Reserve moves to guide interest rates higher in coming months, Thailand’s debt frailties could exacerbate such outflows as investors grow wary of the more indebted emerging markets. That could raise the cost of borrowing for financial institutions, reinforcing an already growing reluctance to extend credit to people who want to buy houses, cars and other items by gorging themselves on more debt.

Source: FT

[lomuamart]

Yeah, that's been in the news for a little while.
All the new cars, new motorbikes, new houses/condos. Low interest rates, a strong Baht, falling exports, decreasing tourism.
Sounds bleak.
Mind you, western countries have been through this and are still going through it. Those countries just hit the bubble a number of years before Thailand.
And I won't mention the political situation.

[buksida]

Yep, and the junta seem happy brushing the problem under the carpet ...

No worries over public debt to GDP
Thailand's public debt will not exceed half of GDP if economic growth comes in at 3.6% this year, says a senior Finance Ministry official. GDP is the main factor in deciding the public debt ratio this year, as borrowing plans have been fixed, said Theeraj Athanavanich, deputy director-general of the ministry's Public Debt Management Office (PDMO). The ratio will be 48.9% at the end of fiscal 2015 if growth reaches 3.6% and inflation stands at 0.8%, he said. Mr Theeraj said the public-debt-to-GDP ratio increased by almost one percentage point for every 100-billion-baht decline in GDP value.

http://www.bangkokpost.com/business/new ... ebt-to-gdp

[Houdi]

So the Finance Ministry's figures are 40% LESS than the those reported in the FT. I wonder which one to believe !!!

[Bristolian]

I am pretty sure that the Finance Ministry will not even consider debt to loan sharks, which is huge in the poorer areas.

[pharvey]

When I first worked in China - around 1995, borrowing was a real no-no. When I moved there in 1999, it was frowned upon, but accepted when buying property or starting a business etc. By 2005/6 was immense (people investing in the property market etc. with the "golden riches at the end of the road"), by the time I left in 2013, it was quite frankly out of control IMHO. If it goes t*ts up in China, it'll cause a huge financial downfall worldwide ..... forget Thailand.

Just seems to be a major problem in Asia at the moment, but let's be perfectly fair, the US, UK and Europe as a whole have done the same thing.

[hhfarang]

Here (in the U.S.) people look at me strangely when I pay cash for things, even groceries and gasoline. It seems plastic is the "coin of the realm" everywhere these days.

[migrant]

Yes the wife, and I, grabbed a couple hot dogs at a fast food restaurant yesterday and the 3 people in front of us used plastic even though the bill was under $25

[Henry 14th]

This subject is the whole reason why we are torn between buying over renting.

It is difficult to know what to do. We pay 20k a month for rent so long term we would be better off buying (something around the 5 million bht region).

It's difficult to know whether a property purchase here in HH is a good long-term investment or a complete gamble.


Sent from my iPhone using Tapatalkkghkc. Molk a
A


ZvV

[Dannie Boy]

This subject is the whole reason why we are torn between buying over renting.

It is difficult to know what to do. We pay 20k a month for rent so long term we would be better off buying (something around the 5 million bht region).

It's difficult to know whether a property purchase here in HH is a good long-term investment or a complete gamble.


Sent from my iPhone using Tapatalkkghkc. Molk a
A


ZvV

your likely to get conflicting advice on this one, but my take is that if you have a Thai wife and are looking to stay for the long term, then buying is the best option, as you can put the purchase in your wifes name and she has a safe inheritance for the future (unless you have other plans for any inheritance?). If I had a farang wife, I'd be tempted to rent so that the capital was always available if the need came to get out quick and not have to worry about a possible distressed sale.