Bank Of Thailand Stresses 4 Risk Factors

[george]

WORDS OF CAUTION: BOT stresses 4 risk factors

Property, household debt, current account all major concerns

BANGKOK: While most market observers have painted a rosy economic outlook, the Bank of Thailand (BOT) yesterday underlined four risk factors to watch for this year.

BOT Governor MR Pridiyathorn Devakula warned against undue optimism, advising people to be careful of deficit from runaway imports, a boom in the property market, rising household debt and any economic bubbles that might arise.

Speaking at the central bank's annual press conference yesterday, Pridiyathorn said that although the risks mentioned above have yet to become problems, they should be closely watched because people are currently willing to accept higher risks.

"In a situation where so many people believe the economy is growing positively, the central bank must be aware of what might happen and clear any hurdles, paving the way for economic growth," he said.

"This year [the BOT] won't worry about growth, but we are concerned about walking too fast and then stumbling."

The governor said the bank would not allow import growth, needed to supply economic activities, to result in a current-account deficit.

If Thailand were to experience a deficit, he said, it would have to depend much more on foreign funds, shaking its fiscal stability as well as investor confidence.

"If we allow imports to increase too much, the current account will finally turn to a deficit. We have a duty to keep watching our backs by maintaining a current-account surplus at a certain level, because we still have US$52 billion [bt2.03 trillion] in foreign debts to pay back," Pridiyathorn said.

The central bank is keeping an eye on the property market with the intent of blocking excessive growth, he said.

The governor said that although there is currently no bubble in the property sector, land sales last year rose by as much as 39 per cent over 2002, reflecting the current economic optimism and the real-estate market's attractiveness.

The BOT, he said, is worried that developers could launch too many projects and end up with a glut, a key factor behind the economic debacle of 1997.

"It's true that demand for homes is increasing," Pridiyathorn said, "because there are more people aged 25 to 49. We don't want to stop them from buying or building, but we must be careful that supply doesn't exceed demand."

He said household debt - including ever-rising consumer financing and credit card lending - should be prevented from increasing to the point where it makes the economy fragile.

In 2002, household debts amounted to Bt82.46 billion, up 20 per cent from previous year. The numbers remain low compared to neighbouring countries, Pridiyathorn noted, but the central bank must focus on each category of consumer finance.

At the end of September, consumer financing had risen by Bt80 billion, or 14.5 per cent, compared to the same period of 2002. Mortgage loans were up 14 per cent and outstanding credit card loans 19 per cent.

Pridiyathorn pointed out that government policy hasn't raised household debts - the private sector boosted the figures on its own.

He said the BOT is scanning the horizon for any warning sign of a bubble economy, monitoring the stock index, land sales and loans to purchase assets. If any such factor shows excessive growth, he said, a bubble could result.

The BOT, meanwhile, said it would soon unveil new measures to speed up debt restructuring for financial institutions.

The governor said the measures would include loan-loss provisions, as earlier discussed with financial institutions.

"We would revise rules to supervise financial institutions by gradually forcing them to speed up debt restructuring," he said. "We have long waited for this period when they're strong enough to handle it."

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Warning signals

The BOT says it will keep an eye on four risk factors:

1. Runaway imports

2. A property-market boom

3. Rising household debt

4. Bubbles in other areas

--The Nation 2004-01-16

[randyksf]

Great article. Thanks for posting it.

I have to agree with everything stated. Something else I have talk to a few Thais and they really do not understand Interest and how it works.

One friend bought a car and was happy with the price then and the monthly payment. Little did he know he went with a long term high interest lone. 18% percent over 5 years. He thought he was doing good until I showed him that for 1000 baht per month more he could have only had a 4 year lone.

It's all about the promotion of the week. This one Girl I know bought a car, and paid. She was proud that he got free maintenance for two years. Didn't have the heart to say all she would needs is and oil change and the normal factory would take care of the rest. If she took 50k off the sticker she would have been really ahead.

I could go for hours with all the examples. The government really should put the credit rating system in soon.

This may seem like senseless rambles and does not tie into what the article said. It does however. The Thais seem to believe anything they are shown. I am really worried that the bubble will burst and do much more damage the 96-97.

The IMF isn’t as strong as it was then. Also the Thai economy is much weaker as a hole. Most business do not have the funding keep afloat in a crash. All the savings went away in the 96-97.

[geroreilly]

Randyksf,

hmmmm, do you think its just Thais that think like that? If the rest of the world doesnt fall for all the marketing scams why do most companies invest sooooooooooooo heavily in marketing? I'll tell you why - because people are gullible! And not just Thais!..... And even if you are not gullible you have to believe someone at some stage.... you cannot know everything yourself!

Have you ever bought something on promotion that you didnt really want? Or at the time the marketing was so good that you just bought it. But in reality it has been sitting under the stairs for months and your wife or girlfriend is giving out that you buy sooooo much stuff and never use it?!?!?!

As for economy here, (back to the post topic!), I reckon it is rocking and the fact that everyone got burnt in 97 is a GREAT thing! Cause once bitten, twice shy! People will be more careful now and even having these discussions shows how much people have come on in the last 6 years! Dont underestimate the Thais or their economy!!!!!