Household Debt At Record Level

[george]

Household debt at record level

Commitments surge to 31% of GDP because of economic slowdown

BANGKOK: -- The level of household debt hit an historic high this month - 31 per cent of gross domestic product (GDP) - mainly because the economy has slowed and forced people to borrow more to survive.

The "Chamber Business Poll" reported yesterday that average household debt surged 13 per cent to Bt132,262 year-on-year in August.

The household debt figure was at its highest ever level.

Thanawat Phonwichai, director of the Economic and Business Forecasting Centre at Thai Chamber of Commerce University, said the figure clearly indicated people were having serious cash-flow problems mainly due to the downward economic trend.

The poll also suggests three ways to solve the problem. Firstly, the government should do more to bring the high rate of debt down to below 30 per cent. Secondly, it should restore the economy and hold a general election as soon as possible. Finally, the government should encourage people to save more.

"Rising debt is one of the major factors that will hit the country's economic growth. The problem will lead to a slow-down in investment by the private sector," Thanawat said.

The findings came from a survey of 1,178 respondents nation-wide.

The poll found people have borrowed more this year for daily living expenses, transport costs, investment, healthcare and households.

Debt per capita rose to Bt6,387.50 per month from Bt4,917 per month in August last year.

The survey, conducted from August 10-15, found that 78 per cent of total respondents said they had a debt burden, compared with 75 per cent from last year.

More people were using "underground loans" - 32 per cent, compared with 26 per cent in the same period last year.

Reasons for making household loans included expensive consumer goods, high interest rates and rising oil prices, which increased the strain on their daily spending.

Thanawat said the figure implied people don't have a choice to borrow money from banks because of high interest rates. He said the government must urgently heal the financial system to persuade people to get loans from banks - and support people by providing soft loan credit to prevent them borrowing from loan sharks.

The village fund was the first choice for people to borrow from, accounting for 19 per cent, followed by public banks, commercial banks, non-banks, relatives, friends - and creditors.

The survey also found that 60 per cent of respondents had trouble paying their debts each month, with only 40 per cent saying they had the capability to pay.

People in the North and Northeast had the most trouble paying their loans because most of them were farmers.

Yajai Chuwicha, head of the Chamber Business Poll, said people with lower incomes were likely to have more financial trouble. Those earning less than Bt20,000 a month had the highest demand for loans.

Despite the increasing household debt rate this year, people were still optimistic about their financial future, Yajai said.

Some 61 per cent of respondents said they would have lower debts next year, while 16 per cent expected to have the same amount of debt and 21 per cent said they expected to have more debt.

-- The Nation 2007-08-24

[bingobongo]

economy is going nowhere and folks are going into debt for day to day expenses.....next to go is the housing market

[KireB]

Sad figures, but not a real surprise.

These are only the surfaced numbers and probably don't include the 'shark loans'.

The lower the interest rate is a short term measure which will lead to more borrowing.

The only way for many Thais to escape the loan-interest-trap is to accept the fact that they can't afford cars, fancy telephones, luxury items, etc... Nothing wrong with just sticking to the basics, is there?

This is a result of the Thaksin era, where the message to the people was.. buy buy and buy.

[stevemiddie]

Nothing wrong with just sticking to the basics, is there?

That apply to you too?

[malcolmswaine]

This is a result of the Thaksin era

poor guy always gets it ...

[lazeeboy]

This is a result of the Thaksin era

poor guy always gets it ...

cant keep blameing taksin ,he didnt make them borrow

[Scott]

A significant part of the problem is the need for status that is so prevalent in the culture. When I first arrived in Thailand, I knew people who would spend nearly their entire salary on an article of clothing and then be able to eat only one meal a day the rest of the month.

I've watched quite a few of my friends (and neighbors) go so needlessly into debt for extremely dubious reasons. It's not just the new car, but another new car, a bigger new car, a more expensive new car. It's designer this, designer that stuff (even if it's fake). Much of this is gain status and is cultural.

I contrast this with my work in Hong Kong. We had an older cleaning lady at the office--cleaned our toilets for the better part of 3 years. One day she announced she was quitting. She was moving to Canada to live with her daughter who was a doctor there. Turns out she also owned three houses in Canada. She absolutely looked like a vagrant bag lady. Stuffed it all in the mattress and made some wise investments, I guess. You don't see much of that in Thailand.

[fredcyber]

I just do not know what can be done. This whole status thing is so deeply ingrained. Until this begins to change it is very dangerous indeed to provide easy access to credit to people who cannot handle it (much like the UK really except that is driven by greed, irresponsibility and stupidity)

[soundman]

The threshhold has been crossed.

Get ready - immenent economic implosion..... Car reposesions, house reposesions, company closures, avg daily wage in freefall, the list goes on.

Coupled with the possibility of a large decline in world markets..... dare we say it .... recession..... or god forbid ..... depression on the horizon for Thailand.

Get liquid ladies & gents....

Soundman.

[Tony Clifton]

One of my friendly neighbors bought a huge black SUV. He now, leaves early in the morning to work as a motorcycle taxi driver, then goes to his full-time job, comes back in the afternoon, hops back on the motorcycle for more taxi until 10 pm.

All of his time, including week-ends, is now spent away from the family and SUV when he had a perfectly fine car and family life before.

As for the attention he needs and status while driving the new vehicle, the tinted windows don't allow to see who's driving.

[TAWP]

Indeed, a couple that is friends to the wife made one purchase on the guys second salary: a big new luxerious car. Unfortuanly he got fired a half year later (expose corruption = get fired) and had to turn to the parents to help them with the mortgage of the loans... and that doesn't even mention always having the latest cellphones and whatnot...

[ratcatcher]

The threshhold has been crossed.

Get ready - immenent economic implosion..... Car reposesions, house reposesions, company closures, avg daily wage in freefall, the list goes on.

Coupled with the possibility of a large decline in world markets..... dare we say it .... recession..... or god forbid ..... depression on the horizon for Thailand.

Get liquid ladies & gents....

Soundman.

Soooo.... this would be a good time to buy a house in Thailand? At least it should be a buyers market?

[soundman]

Soooo.... this would be a good time to buy a house in Thailand? At least it should be a buyers market?

No, in theory that would be next year when banks are having a problem liquidating the glut of properties that accumulate from this year's reposesions.

In all seriousness, a good place to look for cheap properties is in any individual bank branch. Walk in & ask to see the Manager & see what properties they have recently reposesed & what sort of money the bank requires to clear it. Some branches even have them advertised in the general banking area. Wife bought a twenty rai gum tree plantation two years ago at a very discounted rate from the local Kasikorn branch.

Soundman.

[dkstoney]

You all should be happy if the economy goes under. You'll get more in exchange. Things will then be cheaper. Tourism will go up. Somtam will still be B20 where I live and fried rice will stay at B20-30. Rent will remain at what it's at or under a miracle even go down some. Thais will just take a step back and live a simpler life. No one's going to starve in this country. I hope it does crach again. Nothing but good news for everyone.

[nothingleftbutfaith]

Evan if thai people are up to their nose in debt , it doesn't explain how Thailand can be one of the largest market for Mercedes , given the average salary in Thailand, and given that they cost at least 30% more than in Europe.

[Jai Dee]

Baht appreciation leads to labour crisis

President of the National Advisory for Labour Development (NALD) Paisarn Pruetiporn (ไพศาล พฤติพร) indicates that the baht appreciation does not only create labour crisis but also leads to liquidity risks and high costs.

During an NALD seminar, Mr Paisarn says that export is the key factor in driving the economy, adding that about 80% of the Gross Domestic Product (GDP) is of the export sector.

Export growth in the first half of this year is likely to grow by 18%, especially exports of rice and automobile parts. However, textile and processed food products are unable to compete with foreign countries due to labour crisis, liquidity risks, higher costs, and the baht appreciation.

Mr Paisarn urged the government to look into the imminent problems. He further added that the government should set up a fund providing short-term loans with low interest rates for entrepreneurs.

Source: Thai National News Bureau Public Relations Department - 24 August 2007

[Tony Clifton]

Evan if thai people are up to their nose in debt , it doesn't explain how Thailand can be one of the largest market for Mercedes , given the average salary in Thailand, and given that they cost at least 30% more than in Europe.

Underground economy?

[nothingleftbutfaith]

Evan if thai people are up to their nose in debt , it doesn't explain how Thailand can be one of the largest market for Mercedes , given the average salary in Thailand, and given that they cost at least 30% more than in Europe.

Underground economy?

Yes along with corruption money.

[soundman]

Evan if thai people are up to their nose in debt , it doesn't explain how Thailand can be one of the largest market for Mercedes , given the average salary in Thailand, and given that they cost at least 30% more than in Europe.

Underground economy?

Easily explained. The top 5% of Thai families on the wealth scale can easily afford a Benz - which happens to be the most popular pretige car in Thailand.

Given that a family may comprise of lets call it twenty individuals - that would make 60mil (thai population) / 20 (number of family members) = 3mil * 5% = 150,000 families that could easily afford a luxory car or two or five.

Soundman.

[nothingleftbutfaith]

Evan if thai people are up to their nose in debt , it doesn't explain how Thailand can be one of the largest market for Mercedes , given the average salary in Thailand, and given that they cost at least 30% more than in Europe.

Underground economy?

Easily explained. The top 5% of Thai families on the wealth scale can easily afford a Benz - which happens to be the most popular pretige car in Thailand.

Given that a family may comprise of lets call it twenty individuals - that would make 60mil (thai population) / 20 (number of family members) = 3mil * 5% = 150,000 families that could easily afford a luxory car or two or five.

It also helps that you can walk into any car dealership, put a few million baht cash on the table, and drive away with a new car, no questions asked....

Soundman.

[Martin]

My grandmothers use to din it into us: "Neither a borrower nor a lender be"; and my parents thought long and hard before they 'saddled themselves with debt' (i.e. borrowed 60% of the price of a house against a mortgage).

For my first mortgage, in 1963, I was only allowed 75% (i.e. we had to have saved up 25%). Also, I couldn't even get that for any house that cost over 30 months of my salary; and they wouldn't take any account of my wife's salary whatsoever.

The reason was, of course, that the Building Societies were run by trustees who had the grim memories of hard times to make them cautious on behalf of both their depositors and borrowers.

Now we have lenders and borrowers who have no memory of anything but good times, and have no fear of hard times causing them to come unstuck.

I hope none of my grandchildren have re-setting mortgages.

But I would not be surprised if my greatgrandchildren see, and adopt, the wisdom of my grandmothers, after observing the working-out of the sub-prime mess over the next decade.

For Thailand, we can now see that Thaksin overdid the credit-led boom.

However, it hasn't been as rampant as some countries in the West, and Thailand stands a good chance of coping with its effects.

As has been said, nobody here will starve----nor suffer hypothermia.

[Plus]

If anyone seen Heng's early posts, he advocated saving and cash only living, no credit, no mortgages, nothing.

His family taught him that. Not long time ago it was a norm. If you buy something, get enough cash first, no financing.

Blame Thaksin or not, but he was the first one to introduce cheap loans to the poorest Thais on a grand scale, as a government policy.

[KireB]

If anyone seen Heng's early posts, he advocated saving and cash only living, no credit, no mortgages, nothing.

His family taught him that. Not long time ago it was a norm. If you buy something, get enough cash first, no financing.

Blame Thaksin or not, but he was the first one to introduce cheap loans to the poorest Thais on a grand scale, as a government policy.

I still remember one of his favorite speeches on dynamic money.

He claimed that as long as Thais would buy (and borrow) the economy would get a boost and that would lead to more purchase power etc...

[TAWP]

Same logic that makes governments print more money to cover their own expenses...

Anyway, directed lending-schemes against the poor is more often than not a road to failure - for the poor.

Either as in the US now, with re-claimed houses, or here, with spent money and no long term plans on how to manage money...or repay it.

[AGareth2]

If anyone is having their merc repossesed let me know. I've got some dosh.

[Plus]

If anyone seen Heng's early posts, he advocated saving and cash only living, no credit, no mortgages, nothing.

His family taught him that. Not long time ago it was a norm. If you buy something, get enough cash first, no financing.

Blame Thaksin or not, but he was the first one to introduce cheap loans to the poorest Thais on a grand scale, as a government policy.

I still remember one of his favorite speeches on dynamic money.

He claimed that as long as Thais would buy (and borrow) the economy would get a boost and that would lead to more purchase power etc...

I missed that speech. Quick search results:

"I'm not a fan of any kind of financing (except for when I'm on the receiving end of the interest payments of course)"

"I'd also say... don't listen to those who say X amount isn't enough. Start small, pay attention to the details, don't borrow or finance, save and reinvest."

"My family has been in Thailand since the 1930's, and according to grandma and grandpa Heng (and to a lesser extent grandman and grandpa Lin... my wife's set of grandparental units), if you want to live comfortably: work hard and save, and don't waste too much time listening to the radio (watching tv) or following politics, because it's the same show over and over again."

I personally remember arguing with him about car financing - he was totally against losing money on the interest while I argued that improved quality of life justifies it.

[nothingleftbutfaith]

If anyone is having their merc repossesed let me know. I've got some dosh.

Not too sure about Mercs, but given the number of condos about to be completed, it won't be long before some flippers, who won't find any fool to buy at their inflated price, will have to settle for significant discounts.

[Martin]

Another of my grandmothers' sayings was: "Greed leads to need".

They reckoned that greed was a two-headed demon.

First, it caused you to consume or spend what would be better saved as insurance against a 'rainy day'.

Second, it led you 'taking your eye off' your true position, and then you found you were 'in a pickle' when you came to your senses.

My grandmothers would have been horrified at the idea of us having the temptation of a credit card in our pockets.

They even disapproved of shopkeepers who let customers buy on credit ("put it on the slate") till next pay day. They saw it as entrapment of the not-very-bright by people who were exploitive of those other people's weakness for greed.

Hopefully, Thailand came late to the credit-card party, and when it is over (which will be soon now) it won't have as big a hangover as those who came early.