Household debt issue will need a human touch

By The Nation

 

 

The Bank of Thailand needs to address ingrained bad habits and the myth of ‘too big to fail’

 

There are no fixed solutions to the problem of rising household debt, and any measure can backfire drastically. The concern of Bank of Thailand Governor Veerathai Santiprabhob warrants quick and effective measures to address the situation. Household debt has increased considerably – rising 49.14 per cent of gross domestic product annually on average from 1991 to 2017.

 

Household debt in Thailand increased to 68 per cent of GDP in the fourth quarter of 2017 from 67.9 per cent in the third quarter. The sharpest rise was 70.5 per cent, the lowest it’s been 25.4 per cent, back in 1991.

 

The notion that debt helps boost the economy is defied by the ignoble human tendencies to dishonour financial contracts, borrow unproductively and spend without discipline, and repay old debts by borrowing more money. Household debt nearly collapsed the world economy a decade ago. The crisis was largely blamed on the big banks and financial institutions, which led most ordinary citizens to assume the responsibility rested solely on elitist shoulders. While reckless creditors did deserve much of the blame, the borrowers played a no small part in the near-catastrophe.

 

In sounding an alarm bell, Veerathai noted that household debt, when it rises too high, can significantly disrupt the economy. It was a basic lesson in economics: Heavily indebted people might stop spending and in doing so threaten their creditors’ stability. Yet this lesson isn’t an easy one to learn for creditors or borrowers who are blinded by greed or despair.

 

Veerathai will have to include in his anxiety, expressed in a recent media interview, genuine concern for the man on the street. He will have to do no less that change historic habits and overcome the concept of the big financial players being “too big to fail”. 

 

These were the institutions that made fortunes peddling dubious financial packages to investors, creating and then bursting a bubble that caused immense damage globally, with taxpayers left to cover the costs and bail out the greedy and careless creditors. The refinancing plans that ensued gave top priority to the creditors’ wellbeing.

 

Of course, it takes bad creditors and bad borrowers to create an economic crisis. 

 

The difference is that the creditors get all the help and warnings and have all the connections. 

 

The plight of borrowers would rarely be addressed if the creditors weren’t so severely affected. People who pay more in “late fees” than the actual amounts owed, for example, would be left to their own devices had banks not begun complaining about non-performing loans.

 

The impact of household debt varies according to locale. Just a few years ago, Thailand’s household debt as a percentage of GDP was lower than it was in Denmark, Switzerland, Britain and the United States. And of course each country’s ability to cope with household debt is different.

 

Veerathai has to follow up on his concern with moral and practical measures that genuinely take Thailand’s true strengths and weaknesses into account.

 

The big strength is that Thailand is an agricultural country, so it’s always more likely than other nations to have food on the table during a financial crisis. His influence on elements such as interest rates must be wielded with such facts in mind, and not primarily the wellbeing of those who are “too big to fail”.

 

Source: http://www.nationmultimedia.com/detail/opinion/30351496

 

-- © Copyright The Nation 2018-08-06

<deleted>  happened  to  peoples  self  control???

At what level is this debt prominent? In terms of prosecutions which level of Thai society is at risk of going to court. It needs to be broken down more to make sense.

Household debt is over 86% of GDP in the UK, 80% in the US. Thailand should worry!

Edited August 5, 20187 yr by Spidey

Often it is uttered "set a good example". Fathers and others are supposed to show us how to live our own lives. I realize this is Thailand, but in the US our "example" to follow is a govt in a deep and evergrowing pit of debt. That is how the country is run, how it has gotten to where it is, and nothing is changing anytime soon. 

 

Like they tell pro athletes, like it or not the kids will mimic your behavior. If you ask me, we are practically being programmed to live this way. IF you want to find who is at fault, follow the damn money. That will explian all. 

" Household debt has increased considerably – rising 49.14 per cent of gross domestic product annually on average from 1991 to 2017"

 

This would mean that household debt has increased to about 18 times GDP.  Something very wrong with these figures.

Thais cannot handle money it burns their fingers, they have to spend it until "computer says no!" but then its too late. Thais treat loans and credit as a gift. A lesson they never seem to learn.

2 hours ago, Chris Lawrence said:

At what level is this debt prominent? In terms of prosecutions which level of Thai society is at risk of going to court. It needs to be broken down more to make sense.

I had a phone with a provider here, i had a 10,000 baht limit set on it.

 

I travel a lot and sometimes i use roaming, but i don't always have time to check the rates.

 

I went to one country and had roaming on for 2 days, no phone calls were made or received, same for sms, purely used for checking mail and chatting on Whatsapp mostly.

 

When i went to pay the bill that month it was a whopping 46,000baht. Obviously i questioned why it was not shut down at my 10,000 baht limit, they told me it takes time to process the accumulation of charges...

 

I offered to pay 10,000 baht ( my preset limit ), they said no. I asked them what the process would be when i did not pay. Number still valid to receive calls for 2 more weeks and then a letter sent out. When that was ignored i was told number would be cut off. I asked about legal problems, they told me that basically nothing would happen and that i would just be black balled from that provider....

 

It was all quite civilized, the girls and boys in their office were quite amazed by the bill, so was i....

 

My point is, that with a end result like this and little or no consequences with legal action they really have nothing to worry about with everything being on credit... 

3 minutes ago, JaiLai said:

I had a phone with a provider here, i had a 10,000 baht limit set on it.

 

I travel a lot and sometimes i use roaming, but i don't always have time to check the rates.

 

I went to one country and had roaming on for 2 days, no phone calls were made or received, same for sms, purely used for checking mail and chatting on Whatsapp mostly.

 

When i went to pay the bill that month it was a whopping 46,000baht. Obviously i questioned why it was not shut down at my 10,000 baht limit, they told me it takes time to process the accumulation of charges...

 

I offered to pay 10,000 baht ( my preset limit ), they said no. I asked them what the process would be when i did not pay. Number still valid to receive calls for 2 more weeks and then a letter sent out. When that was ignored i was told number would be cut off. I asked about legal problems, they told me that basically nothing would happen and that i would just be black balled from that provider....

 

It was all quite civilized, the girls and boys in their office were quite amazed by the bill, so was i....

 

My point is, that with a end result like this and little or no consequences with legal action they really have nothing to worry about with everything being on credit... 

all you had to do was switch off the cell data, to only allow your, web activities, and (especially) Updates to be downloaded (when) you are on wifi

My only experience is with Nokia and Samsung smartphones; where it's easy to cop a 600mb+ update batch... and you won't even know it if your Notifications are Off too

2 hours ago, Spidey said:

Household debt is over 86% of GDP in the UK, 80% in the US. Thailand should worry!

But, in the UK the majority of the debt relates to house purchases, whereby the borrowers acquire a valuable asset which normally increases in value over time.  That is not the case in Thailand.

5 hours ago, webfact said:

The crisis was largely blamed on the big banks and financial institutions, which led most ordinary citizens to assume the responsibility rested solely on elitist shoulders. While reckless creditors did deserve much of the blame, the borrowers played a no small part in the near-catastrophe.

Blame the victims of predatory lending practices!!!  That's the spirit!!!
 
It's a given: The ignorant will borrow whatever money is extended to them.

Banks and lenders on the other-hand have a fiduciary responsibility not to lend to borrowers who are financially unable to repay the debt - and yet they do!  And they continue to do so.  So yes, the responsibility for any debt crisis is squarely on the shoulders of over-extended financial institutions who engage in predatory, if not outright fraudulent, lending practices. 

Edited August 6, 20187 yr by connda

Very interesting that the Governor Veerachai says that the Thai culture towards borrowing money is ' to pay back existing debts by borrowing more money. unproductive borrowing, not honouring the borrowing requirements, and spend without discipline ",

Not a single mention of the fact that the Financial Institutions are lending to people with little or no realistic way to repay the debt in their lifetime.

EG 50K down and pay for a car over 7 years end cost about 2.5 M for a worthless pile of scrap metal after 7 years

EG 100K down and buy a house over 30 years . Lucky indeed to still be working after the age of 50 and a ruin of a house after 30 years.

These are examples with very low deposit requirements and high interest rates over long periods of time.

Big bang Thailand to come, as ever more people are being lent too, and are taking up these loans.

 

 

Bit of a commotion next door today when a couple turned up asking the folks when the loan was going to be repaid, not the first time.  They ask us for money and my answer is this :-

"let me see if I understand this clearly, you have no money, you want to borrow money, how exactly do you intend to repay a loan if you have no money?" This a stunner and the end of the conversation. They never asked again, well so far.

3 minutes ago, Cake Monster said:

Very interesting that the Governor Veerachai says that the Thai culture towards borrowing money is ' to pay back existing debts by borrowing more money. unproductive borrowing, not honouring the borrowing requirements, and spend without discipline ",

Not a single mention of the fact that the Financial Institutions are lending to people with little or no realistic way to repay the debt in their lifetime.

EG 50K down and pay for a car over 7 years end cost about 2.5 M for a worthless pile of scrap metal after 7 years

EG 100K down and buy a house over 30 years . Lucky indeed to still be working after the age of 50 and a ruin of a house after 30 years.

These are examples with very low deposit requirements and high interest rates over long periods of time.

Big bang Thailand to come, as ever more people are being lent too, and are taking up these loans.

 

 

You right on this, business thrives on every year more business, we are successful and so it goes on, year after year, a bad year and people lose jobs and face or the other way round, you have to have fallow years to let the normal spending catch up and its not just here, but it probably is worse here. Credit to me is spending next years money today, why not just wait till you can afford it that's what my generation had to do, not so the current one and here...……..well Freddie Mercury said it perfectly...………."I want it all and I want it NOW!" Local culture and keeping up with the Jones's or Sombat's.

11 hours ago, kannot said:

<deleted>  happened  to  peoples  self  control???

Went out of the window together with attention span, social skills, etc. Thank facebook, twitter, instagram and other dumbing down machines. 

 Household debt has increased considerably – rising 49.14 per cent of gross domestic product annually on average from 1991 to 2017.

 

That's official household debt, the guy who shows up at my neighbors house every week doesn't look very official. He stretches out a paper on his motorcycle seat and the neighbor signs it, I can only assume that the interest rate is a bit higher than the banks.

Teachers with loans and students with loans seem to have solved their debt problem. Just don't make repayments. Problem solved!

Those that endlessly borrow, for whatever reason, deserve the end results and should be shown little latitude as many others do live within their means. Also, the banks that facilitate such ridiculous lending deserve their up-commence too as they are irresponsible.