Thai economists predict further economic contraction from Covid-19 fallout

[webfact]

Economists predict further economic contraction from Covid-19 fallout

By The Nation

 

From left, economists Yunyong Thaicharoen, Charl Kengchon, Burin Adulwattana and Somprawin Manprasert share their views on the economic outlook post-Covid crisis at an exclusive roundtable hosted by Nation Group and Nation TV on July 2.

 

Bad debts may account for 30 per cent of total bank loans, while local corporates may need a huge liquidity injection worth Bt1.7 trillion to survive the Covid-19 fallout, economists warned as they predicted that it will take time for the economy to fully recover.

 

The Thai economy this year is expected to contract even deeper than it did during the 1997 Asian financial crisis, said Charl Kengchon, executive chairman at Kasikorn Research Centre.

 

The Bank of Thailand recently projected that the GDP will contract 8.1 per cent, though there is a risk that it will drop even further due to the threat of a second wave of Covid-19 infections, he said at an exclusive roundtable hosted by the Nation Group and Nation TV on July 2.

 

This crisis is different from the one in 1997-1998, because banks now are far stronger, he said. 

 

“The most important thing to focus on now is the asset quality, as bad debts were estimated to be 21 per cent of Bt15 trillion of total bank loans in the first quarter, and it might spike to 29.9 per cent in the second quarter,” he said. 

 

Though the government has implemented financial aid to support corporates, these measures wrap up in October. If by then the economy rebounds and businesses survive, then banks will not have much trouble with the quality of assets, but if it doesn’t, then banks will have huge problems with a large number of bad debts. This is when we will see if the government implements extra support measures, he said. 

 

“Everyone is like a patient, surviving with the help of ventilators, but what happens after that is still not clear. Nobody knows if businesses will be able to come back,” he said. 

 

Another key issue is the rate of unemployment, Charl said, adding that businesses need large sums of money to keep their employees, so the government may need to provide more support via the national budget. 

 

It is also the government’s job to boost confidence in the economy, so banks are willing to lend and the affluent consumers are willing to spend. Thus, changes to the tax policy may be necessary, he added. 

 

Somprawin Manprasert, head of Krungsri Research and chief economist at Krungsri Bank, said the government has been successful in controlling the spread of the virus, but it was at the cost of an economic downturn. 

 

“How long can we continue to live like this?” he asked. “According to stress-test trials, we found that corporates need an injection of Bt1.7 trillion to survive the crisis. As many as 90,000 companies are suffering from liquidity squeeze,” he said, adding that the government’s repeated stimulus packages may not answer the problem – an injection of cash would be better. 

 

“If government policies fail to address economic woes, the recovery will be L-shaped, and it may take more than three years for the economy to recover,” he warned. 

 

The Krungsri Research team has predicted that the economy will contract 10.3 per cent this year, only growing 2.9 per cent next year, before expanding 4 per cent in 2022. The economy is only expected to return to pre-crisis levels in 2023. 

 

Despite Thailand having large international reserves, economic policies have not yet been effective in using available resources, he added. 

 

Burin Adulwattana, chief economist at Bangkok Bank, said the impact the virus has had on the economy is possibly the worst in 120 years. 

 

“A stronger baht is also making exports worse, while other economies are also weakening, and the Thai tourism and auto industries are contracting sharply,” Burin said. 

 

The expected number of foreign arrivals is only expected to hit 9 million, compared to more than 30 million yearly normally, he said. 

 

The economy has also been constrained by the dwindling of labour, while the country becomes an ageing society, he said. 

 

Planned investment in the Eastern Economic Corridor (EEC) may not be enough to upgrade the economy into a 4.0 economy that is driven by information technology. 

 

While 30 per cent of the labour force is in agriculture sector which accounts for just 8 per cent of GDP, the challenge is to boost their productivity or help them migrate to the industrial sector.

 

The high tax environment does not encourage highly-skilled foreign workers to move to Thailand either, he said, adding that they prefer to work in Hong Kong or Singapore where the tax rate is much lower. 

 

Yunyong Thaicharoen, first executive vice president of Economic Intelligence Centre (EIC) at Siam Commercial Bank, said the ongoing crisis is worse because it affects both demand and supply sides. Though the government has started relaxing lockdown restrictions, debts and fragility of small and medium-sized enterprises (SMEs) remain issues of concern.

 

“Recovery will be U-shaped because Thailand depends too much on the global market, while every country is affected now. We have revised our projection of the GDP to contract 7.3 per cent from the previous projection of a 5.6 per cent shrinking,” he said. 

 

Though the government has responded quickly in supporting the economy, its next step should be to support targeted groups that need immediate help, he said. While further lowering interest rates may not help much, the most important thing is to help banks gain more confidence and give liquidity support to SMEs, he said. 

 

“Covid-19 has exposed the Thai economy’s weak point, which is our limited technology capacity. China, for instance, successfully upgraded its technology and so it was able to restore consumer confidence quickly. Now Thailand’s biggest challenge is to have a clear roadmap and strong cooperation between public and private sectors,” he added.

 

Source: https://www.nationthailand.com/business/30390865

 

-- © Copyright The Nation Thailand 2020-07-07

 

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[bert bloggs]

dont worry the baht will stay strong.

[GalaxyMan]

These clowns are throwing darts at a dartboard with their constant predictions, then revisions of their predictions. They don't have a clue. ????

[herwin1234]

4 minutes ago, GalaxyMan said:

These clowns are throwing darts at a dartboard with their constant predictions, then revisions of their predictions. They don't have a clue. ????

yes, sure, they are all clowns and idiots, all Thai profesionals, officials,  politicians, and just about anyone here in Thailand. Except you of course, the Pinnacle of Wisdom and Knowledge and Compassion.

anyway, making predictions and than learning from it and adjusting is a normal way and smart way to go. nothing wrong with that.

Edited July 7, 2020 by herwin1234

[GalaxyMan]

2 minutes ago, herwin1234 said:

yes, sure, they are all clowns and idiots, all Thai profesionals, officials,  politicians, and just about anyone here in Thailand. Except you of course, the Pinnacle of Wisdom and Knowledge and Compassion.

Astute! I'm impressed. ????

[Walker88]

There's some odd things in this article, which might be attributable to the author and not the quoted economists.

 

It notes high levels of bad debts in banks, yet states that this is not 1997 'because the banks are in a much stronger position'.

 

If banks bad debts are expected to 'spike to 29.9%' as the article states, then if their leverage ration is above 3.33:1 they effectively will be insolvent. A quick glance at some of their financials shows them to be leverage at between 8:1 and 15:1.

 

That bad debt number better not be correct.

 

At a BTS station I saw an ad for a condo from a major BKK condo builder that has slashed prices on an under-construction project by 50%. If that is the current state, or trend, in assets prices, banks could be in some difficulty.

 

As for the economy, -8.1% seems rather optimistic given the fall in Tourism Revenue (17.7% of GDP in 2019, in official figures), plus the recently reported record fall in exports, as other world economies move into Recession.

 

A longer term concern is that Covid has taught manufacturers worldwide that supply chains can be easily disrupted, so home-sourcing might be more secure. Nations also have seen how important it is to maximize domestic employment. Both of those pose a threat to any export-driven economy.

[Trillian]

8 minutes ago, Walker88 said:

There's some odd things in this article, which might be attributable to the author and not the quoted economists.

 

If banks bad debts are expected to 'spike to 29.9%' as the article states, then if their leverage ration is above 3.33:1 they effectively will be insolvent. A quick glance at some of their financials shows them to be leverage at between 8:1 and 15:1.

 

That bad debt number better not be correct.

 

 

I don't believe those figure take into consideration the revised capital adequacy ratio's, Thai banks adhere to the Basel III protocol plus BOT has added its own additional layer on top.

 

I can only find BOT NPL 1Q20 which shows NPL's at 3.0%

https://www.bot.or.th/App/BTWS_STAT/statistics/BOTWEBSTAT.aspx?reportID=794&language=ENG

 

 

[Walker88]

9 minutes ago, Trillian said:

I don't believe those figure take into consideration the revised capital adequacy ratio's, Thai banks adhere to the Basel III protocol plus BOT has added its own additional layer on top.

 

I can only find BOT NPL 1Q20 which shows NPL's at 3.0%

https://www.bot.or.th/App/BTWS_STAT/statistics/BOTWEBSTAT.aspx?reportID=794&language=ENG

 

 

Yes, that makes a lot more sense.  While bad debt numbers are likely to rise markedly (Thai society is pretty highly leveraged), I do think the author of this article was confused.

[DrTuner]

I remember my friend started yapping about the US subprime mortages in 2002. It took six years before it really hit. I'm guessing that's about the same it'll take Thailand to bottom out. By then they'll be a province of China though.

[Trillian]

2 minutes ago, DrTuner said:

I remember my friend started yapping about the US subprime mortages in 2002. It took six years before it really hit. I'm guessing that's about the same it'll take Thailand to bottom out. By then they'll be a province of China though.

One difference between sub-prime and NPL's is that NPL's are more secured lending, less than 10% is personal or credit card loans, the remainder is lending based on some sort of asset which retains a future value.

[DrTuner]

7 minutes ago, Trillian said:

One difference between sub-prime and NPL's is that NPL's are more secured lending, less than 10% is personal or credit card loans, the remainder is lending based on some sort of asset which retains a future value.

That's the banks. The loanshark industry covers the unsecured loans around here. People will always chain and leverage their loans as far as they can, hence the years long delay until they reach the end of the rope.

[vivananahuahin]

They never speak about inflation,about recession and in third depression,bad times are coming in the world.

[Trillian]

2 minutes ago, vivananahuahin said:

They never speak about inflation,about recession and in third depression,bad times are coming in the world.

Inflation is a real problem in Thailand and has been for years, the problem is it's too low and the bank cannot manage to increase it. In recent years inflation has averaged under 1% per year, it's currently -3.4% and forecast to go lower.

[Bender Rodriguez]

next "wave"...; do nothing government .... much better for everybody

[Cake Monster]

1 hour ago, Trillian said:

One difference between sub-prime and NPL's is that NPL's are more secured lending, less than 10% is personal or credit card loans, the remainder is lending based on some sort of asset which retains a future value.

Thats all good if the 90% of lending is based on good asset value to book ratio.

The future value if it becomes NPL, could possibly be only 50%, or less,  of the asset value due to an oversupply of bad debt

[Trillian]

15 minutes ago, Cake Monster said:

Thats all good if the 90% of lending is based on good asset value to book ratio.

The future value if it becomes NPL, could possibly be only 50%, or less,  of the asset value due to an oversupply of bad debt

Yes agreed. That's why yesterday I think it was, the economics statement of the day from BOT regarding NPL's was for banks to focus on asset quality. Sensibly they will only make further loans to those with high quality assets.

[Cake Monster]

1 hour ago, Trillian said:

Yes agreed. That's why yesterday I think it was, the economics statement of the day from BOT regarding NPL's was for banks to focus on asset quality. Sensibly they will only make further loans to those with high quality assets.

And not before time.

All the Loans for cars Etc cannot be classed as high quality debt, as a car is a depreciating asset.

There is also an overpriced asset of Land in Thailand, which many use as security on Loans. This needs addressing also.

[bert bloggs]

One of the large banks repossed a property on our estate years ago ,they have a family living in it to look after it ,its valued and on sale at 29 million ,at a rough guess i would say worth at most 10 million . and that was before it got in the state its in now .

[phkauf]

The real problem to hit is when the condo market tanks. So many were bought on speculation that prices always rise and they could rent them out or flip them. Well the music is stopping and a lot of people are going to be without a chair. 

How many condos were bought by Chinese investors that would rent out via AirBnB? Now that's dead and these investors, rumors they bought entire floors of some developments, will be sellers. Also watch out for them defaulting on the common charges which can put a lot of stress on the building finances. 

There is no easy way out of this mess and there is a serious lack of intelligence in the current government to figure a way out in any case.

[DrTuner]

22 minutes ago, phkauf said:

How many condos were bought by Chinese investors that would rent out via AirBnB? Now that's dead and these investors, rumors they bought entire floors of some developments, will be sellers. Also watch out for them defaulting on the common charges which can put a lot of stress on the building finances. 

I have no sympathy for condo building managers or developers who decided to sell to Chinese and let them run illegal hotels. Good riddance.

[Deli]

To sum it up: The world is mostly bankrupt due to the Chinese Virus, the rich, some non - democratic Governments and specially China take profit and gain more control. Full stop.

[Susco]

10 hours ago, Walker88 said:

At a BTS station I saw an ad for a condo from a major BKK condo builder that has slashed prices on an under-construction project by 50%. If that is the current state, or trend, in assets prices, banks could be in some difficulty.

 Not the way Thai banks manage their accounting.

 

When the developer of the condo defaults, the bad debts will be written off, and the building under construction will become an asset of the bank at full value in the books.

 

So in fact the more developers default, the stronger the Thai banks will be considered, as their assets grow each time.

[Susco]

3 hours ago, Cake Monster said:

There is also an overpriced asset of Land in Thailand, which many use as security on Loans. This needs addressing also.

You're on to something.

 

I'm trying to sell my house for years already, many lookers but no takers, however it is a nice property built to a high quality standard.,

 

My asking price is 8 million.

 

In the past 6 months I had 2 interested parties who need a mortgage, and had their banks do an appraisal.

 

Bangkok bank appraised it at 10.3 Million, while SCB appraised it at 11.5 Million. Take note appraisal values for mortgages are fire sale prices.

 

By the way, when I bought the land 11 years ago I paid 950K for 1 Rai, now asking prices in this area are 4.5 - 5 Million for a Rai. Land department values it at ~450K for a Rai

 

 

 

 

Edited July 7, 2020 by Susco

[Blumpie]

10 hours ago, Walker88 said:

There's some odd things in this article, which might be attributable to the author and not the quoted economists.

 

 

 

As for the economy, -8.1% seems rather optimistic given the fall in Tourism Revenue (17.7% of GDP in 2019, in official figures), plus the recently reported record fall in exports, as other world economies move into Recession.

 

 

Does the 17.7 percent GDP also include 5 percent spinoff industries directly from tourism?  

 

As we know, the chances of any kind of normal for 2020 is pretty much zero despite all the hope and "talks" with travel bubbles.  I think everyone should be talking about 2021, not 2020 which is, in my opinion, a total and complete write-off.  

[AndrewMciver]

 

It's all over for Thailand. 

 

Within a year they would be unable to pay the countries debt, the country in full starvation mode. It will turn to China, who will incorporate it into it's axis and take over.

 

Nana Plaza will be bulldozed and replaced with a pointless Chinese made condo. Beaches will be boarded up and replaced by more Chinese made condos. 

[kingdong]

5 hours ago, Trillian said:

Inflation is a real problem in Thailand and has been for years, the problem is it's too low and the bank cannot manage to increase it. In recent years inflation has averaged under 1% per year, it's currently -3.4% and forecast to go lower.

wish someone would tell the bargirls that.

[kingdong]

30 minutes ago, Deli said:

To sum it up: The world is mostly bankrupt due to the Chinese Virus, the rich, some non - democratic Governments and specially China take profit and gain more control. Full stop.

and they still maintain the virus wasn,t man made?

[kingdong]

18 minutes ago, Susco said:

You're on to something.

 

I'm trying to sell my house for years already, many lookers but no takers, however it is a nice property built to a high quality standard.,

 

My asking price is 8 million.

 

In the past 6 months I had 2 interested parties who need a mortgage, and had their banks do an appraisal.

 

Bangkok bank appraised it at 10.3 Million, while SCB appraised it at 11.5 Million. Take note appraisal values for mortgages are fire sale prices.

 

By the way, when I bought the land 11 years ago I paid 950K for 1 Rai, now asking prices in this area are 4.5 - 5 Million for a Rai. Land department values it at ~450K for a Rai

 

 

 

 

so the banks wouldn,t offer the interested parties a mortgage?

[kingdong]

3 hours ago, phkauf said:

The real problem to hit is when the condo market tanks. So many were bought on speculation that prices always rise and they could rent them out or flip them. Well the music is stopping and a lot of people are going to be without a chair. 

How many condos were bought by Chinese investors that would rent out via AirBnB? Now that's dead and these investors, rumors they bought entire floors of some developments, will be sellers. Also watch out for them defaulting on the common charges which can put a lot of stress on the building finances. 

There is no easy way out of this mess and there is a serious lack of intelligence in the current government to figure a way out in any case.

good post,nearly every recession is preceeded by a property price boom,word to the wise, when the proverbial " man in the street "gets involved the games finished.

[Susco]

7 minutes ago, kingdong said:

so the banks wouldn,t offer the interested parties a mortgage?

Did I say that?

 

Lot of people, especially foreigners, these days are skint but don't want to admit it.

 

Both parties, foreigners, need to borrow the FULL amount of the property.

 

Bangkok bank would offer 80% of appraised value, while SCB would offer 70%, and of course the mortgagor need to have some guarantees that he can pay back the mortgage.

 

That is the time the foreigner wakes up from his dream