Thai Household Debt

[Heng]

"Share" loans vary quite a bit interest wise but you can't really say they are generally interest free or 'low.' In groups with high liquidity, almost no one will ever 'bid' to take the loan so in those cases it's true, these share meetings are more like social events. In groups where there are folks who are constantly low on cash, then the interest bidding is competitive and can be comparable to loan shark/black market rates.

:-)

I guess I will have to take your word for it as I never knew a share loan that was high interest and I have seen quite a few in the construction trades among people with very little cash. Also a lot of teachers that were property rich but cash poor.

The main benefit of the share system is the 'personal' credit / no collateral aspect of it. As far as interest goes, that's a 'market' situation just like anything else with supply and demand (and in any share group, there are always varying levels of how much any particular member wants/needs or doesn't want the loan in any particular cycle). There are no caps or limits as to how much or how little one has to bid (other than you can't simply bid zero) so there's nothing to fix these types of loans to 'no' or 'low' interest.

:-)

[rgs2001uk]

"Share" loans vary quite a bit interest wise but you can't really say they are generally interest free or 'low.' In groups with high liquidity, almost no one will ever 'bid' to take the loan so in those cases it's true, these share meetings are more like social events. In groups where there are folks who are constantly low on cash, then the interest bidding is competitive and can be comparable to loan shark/black market rates.

:-)

I guess I will have to take your word for it as I never knew a share loan that was high interest and I have seen quite a few in the construction trades among people with very little cash. Also a lot of teachers that were property rich but cash poor.

The main benefit of the share system is the 'personal' credit / no collateral aspect of it. As far as interest goes, that's a 'market' situation just like anything else with supply and demand (and in any share group, there are always varying levels of how much any particular member wants/needs or doesn't want the loan in any particular cycle). There are no caps or limits as to how much or how little one has to bid (other than you can't simply bid zero) so there's nothing to fix these types of loans to 'no' or 'low' interest.

:-)

Heng, you missed out the bit about, sooner or later the cash builds to such an amount that the temptation to do a runner to Nakon Nowhere takes over, very common here in Bkk to hear of such stories.

[chiangmaikelly]

I think loans of this type (share) are a win win situation. I see nothing wrong with them except for the professional bankers. Who could all jump in he lake as far as I am concerned.

For the people who don't live in Thailand it should be mentioned that this is a very common way of financing here.

Cash has always been king and even if one borrows money from the bank to pay for a house the bank gives the seller cash and not a check at the time of the transaction.

Edited October 23, 2012 by chiangmaikelly

[Heng]

"Share" loans vary quite a bit interest wise but you can't really say they are generally interest free or 'low.' In groups with high liquidity, almost no one will ever 'bid' to take the loan so in those cases it's true, these share meetings are more like social events. In groups where there are folks who are constantly low on cash, then the interest bidding is competitive and can be comparable to loan shark/black market rates.

:-)

I guess I will have to take your word for it as I never knew a share loan that was high interest and I have seen quite a few in the construction trades among people with very little cash. Also a lot of teachers that were property rich but cash poor.

The main benefit of the share system is the 'personal' credit / no collateral aspect of it. As far as interest goes, that's a 'market' situation just like anything else with supply and demand (and in any share group, there are always varying levels of how much any particular member wants/needs or doesn't want the loan in any particular cycle). There are no caps or limits as to how much or how little one has to bid (other than you can't simply bid zero) so there's nothing to fix these types of loans to 'no' or 'low' interest.

:-)

Heng, you missed out the bit about, sooner or later the cash builds to such an amount that the temptation to do a runner to Nakon Nowhere takes over, very common here in Bkk to hear of such stories.

That definitely happens as well. The 'credit check' aspect of it is who you are friends with and who you associate with. A share group might be composed of 30 construction workers, taxi drivers, and prostitutes. It also might be all hotel owners and rice exporters. Depending on the group, the 'tao' or holder of the funds may guarantee the funds for less 'credible' members. Ah, okay that's where some folks may misunderstand the 'share' system. There IS exactly ONE interest free loan per cycle. The holder of the funds traditionally always gets the first loan cycle at zero interest. The trade off is that they have to keep everything organized as to collecting all the funds, and adding up the interest to be paid for each 'bid' cycle. The 'tao' is usually the most financially established member of the group, or in a group of relative equals will be the most senior (perhaps by age, power, etc.) for whatever reason.

p.s. also the cash doesn't really 'build up' it's roughly the same amount (plus simple interest) that everyone has the right to borrow one time per cycle.

Edited October 23, 2012 by Heng

[nong38]

With no financial planning experience what is to be expected? Its great to be able to go and spend money we did not know we had. I know of a couple who have stall in amarket, they have a pick up and its works fine, suddenly they have a new one as well! What have they bought that for? For going on holiday! But they dont go on holiday!!!!!

Thais have money they spend it, if they dont they borrow it, then spend it, just like the UK and the USA, the baby comes home one day.

Edited October 23, 2012 by metisdead
: Bold removed.

[n0mad]

You think there are households in Thailand with no debt?

My household in Thailand has no debt.

Neither does my MILs household.

So that's two for a start.

I have 300% so I make up for you.

This is exactly what i'm trying to point out, it's those without debt making those with debt look better in the figures by bringing the number down.

The vast majority of loans in Thailand are low or no interest share loans. A group of Thai people band together and pool resources. When one wants a loan the others make the loan. Teachers, doctors, government or bar workers all have these share arrangements. 50% of the economy is off the books guys what do you expect. These are not the loan shark loans but of course those too exist. Then too are the Chinese family loans to buy multi billion dollar hotels.

firstly, if the vast majority of loans are group loans then just like loans to loan sharks they are also not reported and then also would not be part of those figures. As far as loan sharks go i only have experience with a friend of mine who's father in Sa Kaew is a local loan shark, I had to spend an afternoon with her driving around collecting money was amazed at how many people she collected from. So i don't know how wide spread it is i just know it exists and could add quite a bit to that figure.

Also, My MIL's experience with those loan groups she had one of the participants in a group she was a member take the money and run. They didn't even try and find the person basically wrote it off, couldn't believe it. While the terms are often very good the risks are high and there is no recourse as police wouldn't get involved. If times became tough these loan groups could easily bring many within the group to financial collapse if the current member who has borrowed the money does a runner, creating a snowball effect.

[loong]

Thai household debt as percentage of disposable income 53%

US household debt as percentage of disposable income 130%

UK household debt as percentage of disposable income 176%

Canada household debt as percentage of disposable income 140% (2009)

Australia household debt as percentage of disposable income 150%

The most important aspect is the cost of servicing the debt as opposed to the amount of debt.

If a household has an income of 100,000 Bt per year and needs every single Baht of that to survive, then servicing a debt of 53,000 Bt would be a big problem, in fact impossible.

[chiang mai]

Thai house holds with debt only captures those households who have debt, Thai household debt captures those households with no debt as well as those with debt. Those households with no debt would artificially reduces the figure you quoted.

Just when you think you've heard everything, this comes along!

Let's keep it simple, "http://www.ehow.com/how_6864020_calculate-household-debt.html".

[chiang mai]

Page 27 of the following has a neat little chart that shows changes in global credit lending which is exploding in China, Turkey, Argentina, Indonesia and Thailand, in that order, during 2012. What that means is that banks are lending like crazy in those countries. (note that it's shrinking in the western countries such as US, UK etc)

http://www.bis.org/p...df/ar2012e3.pdf

Bank lending in Thailand, as a percentage of deposits, has gone from 94% to 117% in a couple of months, they (the BOT) tell us that bad debt has shrunk from 2.7% to 2.5%.

The message is, if Thai's want to borrow money it's easy to go into a bank and do so. More importantly perhaps is the fact that they appear to be paying it back so if household debt is an issue, it's not a big one.

BTW since it was being discussed inaccurately elsewhere, here's the unemployment figure, 0.73%

http://thaifinancialpost.com/2012/05/29/nesdb-employment-rate-lowered-but-household-debts-increase-in-2012/

Edited October 24, 2012 by chiang mai

[JeffreyMcCollum]

First the girls at the bank make maybe 9 - 12k a month so not as high as you say (My friend works at a bank in CM)

Second most live at home or with a boy friend who covers most of the home expense.

Buy the phone on a payment plan and it cost 1000 Bt a month.

My inlaws, who live in the country farm home is paid 100% as is everything they have. And their monthly expenses including food is under 5000 a month.

Simple lives and happy, as all my things with my wife are paid if full

[n0mad]

Thai house holds with debt only captures those households who have debt, Thai household debt captures those households with no debt as well as those with debt. Those households with no debt would artificially reduces the figure you quoted.

Just when you think you've heard everything, this comes along!

Let's keep it simple, "http://www.ehow.com/...old-debt.html".

I'm trying to explain it's an average figure of all Thai Households, the official figures capture every single Thai household whether you live in a slum with no debt or Ekkamai with a mansion of debt.

Page 27 of the following has a neat little chart that shows changes in global credit lending which is exploding in China, Turkey, Argentina, Indonesia and Thailand, in that order, during 2012. What that means is that banks are lending like crazy in those countries. (note that it's shrinking in the western countries such as US, UK etc)

http://www.bis.org/p...df/ar2012e3.pdf

Bank lending in Thailand, as a percentage of deposits, has gone from 94% to 117% in a couple of months, they (the BOT) tell us that bad debt has shrunk from 2.7% to 2.5%.

The message is, if Thai's want to borrow money it's easy to go into a bank and do so. More importantly perhaps is the fact that they appear to be paying it back so if household debt is an issue, it's not a big one.

BTW since it was being discussed inaccurately elsewhere, here's the unemployment figure, 0.73%

http://thaifinancial...crease-in-2012/

In regards to the changes in loan ratio and bad debts, could also be a sign some people are paying off current debt with new debt. thus increasing the banks loan books while also lowering bad debts. I know back home lots of people used to roll credit card debt every 6-12months as they could get interest free periods etc. This of course is a possibility and i don't intend this to be a fact of any kind as it is obviously not verifiable.

quite frankly i find it hard to trust any of these figures as they just don't correlate.

[CPH]

Many Thais have more money than people in the west because they do not pay any taxes and they live many family members in one house and maybe share a car. They do not have the many expenses we have in the west such as insurance, mortgage, property taxes etc etc.

[chiang mai]

Many Thais have more money than people in the west because they do not pay any taxes and they live many family members in one house and maybe share a car. They do not have the many expenses we have in the west such as insurance, mortgage, property taxes etc etc.

Is the wrong answer!

Most Thai's own land in some shape and form and all have to pay taxes on that land each year or else they will loose it, mostly true in the case of non-chanotte land. And any Thai who has a job and is paid a salary is subject to PAYE equivelent and is taxed at source.

Virtually every family has at least a motorbike and most will have a car, many will have loan payments to make to village funds, banks, collectives or loan sharks and whilst many do not have mortgages they will equivelent debt elsewhere..

[chiang mai]

Thai house holds with debt only captures those households who have debt, Thai household debt captures those households with no debt as well as those with debt. Those households with no debt would artificially reduces the figure you quoted.

Just when you think you've heard everything, this comes along!

Let's keep it simple, "http://www.ehow.com/...old-debt.html".

I'm trying to explain it's an average figure of all Thai Households, the official figures capture every single Thai household whether you live in a slum with no debt or Ekkamai with a mansion of debt.

Page 27 of the following has a neat little chart that shows changes in global credit lending which is exploding in China, Turkey, Argentina, Indonesia and Thailand, in that order, during 2012. What that means is that banks are lending like crazy in those countries. (note that it's shrinking in the western countries such as US, UK etc)

http://www.bis.org/p...df/ar2012e3.pdf

Bank lending in Thailand, as a percentage of deposits, has gone from 94% to 117% in a couple of months, they (the BOT) tell us that bad debt has shrunk from 2.7% to 2.5%.

The message is, if Thai's want to borrow money it's easy to go into a bank and do so. More importantly perhaps is the fact that they appear to be paying it back so if household debt is an issue, it's not a big one.

BTW since it was being discussed inaccurately elsewhere, here's the unemployment figure, 0.73%

http://thaifinancial...crease-in-2012/

In regards to the changes in loan ratio and bad debts, could also be a sign some people are paying off current debt with new debt. thus increasing the banks loan books while also lowering bad debts. I know back home lots of people used to roll credit card debt every 6-12months as they could get interest free periods etc. This of course is a possibility and i don't intend this to be a fact of any kind as it is obviously not verifiable.

quite frankly i find it hard to trust any of these figures as they just don't correlate.

The only meaningful statistic in economic terms is household debt which measures income against debt expense.

Also, I've not seen the interest free periods offered on credit cards in Thailand, just the ususal 54 days purchase period..

[n0mad]

The only meaningful statistic in economic terms is household debt which measures income against debt expense.

Also, I've not seen the interest free periods offered on credit cards in Thailand, just the ususal 54 days purchase period..

How meaningful can it be if ti can't capture all household debt such as debt from loan sharks or from loan groups?

Also, an interest free period would be irrelevant and only a bonus if your sole purpose of rolling over debt is to avoid default.

[chiang mai]

The only meaningful statistic in economic terms is household debt which measures income against debt expense.

Also, I've not seen the interest free periods offered on credit cards in Thailand, just the ususal 54 days purchase period..

How meaningful can it be if ti can't capture all household debt such as debt from loan sharks or from loan groups?

Also, an interest free period would be irrelevant and only a bonus if your sole purpose of rolling over debt is to avoid default.

From a financial reporting perspective the government/BOT can only report what can be seen, unofficial debt such as loans from relatives, loan sharks or illicit funds can only be assumed, the same in any country.

When you say roll over debt to avoid default, I guess you must mean taking a debt and putting it on your credit card for cash, in which case cash advances would be seen by the credit card issuers and is likely reported somewhere.

[CPH]

land taxes are very low, maybe a few hundred per year for most. Only 2.65 percent of Thais pay taxes and most people who earn below 20.000 baht per month do not pay taxes. And rightly so many Thais earn land which they have from family and can easily build a cheap house. I was just trying to answer why so many Thais have expensive smart phones and why many Thais have much more money than we as westerners expect. It is also correct that many Thais have debt.

[chiangmaikelly]

land taxes are very low, maybe a few hundred per year for most. Only 2.65 percent of Thais pay taxes and most people who earn below 20.000 baht per month do not pay taxes. And rightly so many Thais earn land which they have from family and can easily build a cheap house. I was just trying to answer why so many Thais have expensive smart phones and why many Thais have much more money than we as westerners expect. It is also correct that many Thais have debt.

Where did you get the 2.65 percent figure?

[CPH]

I will try to find it, I saw it in news I think here on TV. I was also a little surprised, but it is because most people earn around or below 20.000 baht per month and deductibles results in no or very little taxes paid.

[chiangmaikelly]

I will try to find it, I saw it in news I think here on TV. I was also a little surprised, but it is because most people earn around or below 20.000 baht per month and deductibles results in no or very little taxes paid.

Everyone who I know receives a pay check and the taxes are taken out of the check. I would think about 50% of Thai wage earners get a pay check and have taxes withheld. I think you are way off.

[StreetCowboy]

I will try to find it, I saw it in news I think here on TV. I was also a little surprised, but it is because most people earn around or below 20.000 baht per month and deductibles results in no or very little taxes paid.

Everyone who I know receives a pay check and the taxes are taken out of the check. I would think about 50% of Thai wage earners get a pay check and have taxes withheld. I think you are way off.

Looking at my most recent tax submission, my exemption allowances amounted to something in the region of 150,000 baht, and then the first 150,000 was taxed at nil percent.

I don't know what proportion of Thais earn less than say 240 - 300 K per year, but I understand it is quite a high proportion. It wouldn't be difficult for a Thai person to find another 30 - 120 K of allowances, and there's plenty more allowances available for the well-off (pension, savings, mortgage allowances.

SC

[n0mad]

The only meaningful statistic in economic terms is household debt which measures income against debt expense.

Also, I've not seen the interest free periods offered on credit cards in Thailand, just the ususal 54 days purchase period..

How meaningful can it be if ti can't capture all household debt such as debt from loan sharks or from loan groups?

Also, an interest free period would be irrelevant and only a bonus if your sole purpose of rolling over debt is to avoid default.

From a financial reporting perspective the government/BOT can only report what can be seen, unofficial debt such as loans from relatives, loan sharks or illicit funds can only be assumed, the same in any country.

When you say roll over debt to avoid default, I guess you must mean taking a debt and putting it on your credit card for cash, in which case cash advances would be seen by the credit card issuers and is likely reported somewhere.

Totally agree, which to me lowers significantly how meaningful the 53% figure really is.

i mean actually roll over debt as in use new debt be it a credit card, personal loan or whatever to pay off existing debt that has or is heading to delinquency, create more favourable terms eg longer time period, or possibly to make an interest payment for example.

Think of mortgage refinancing, if you are struggling to make mortgage payments you can refinance to change the terms of the debt such as different interest rate, whether it's interest only or P&I, length of the loan eg extending it by 5 yrs.

[Tywais]

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[inthepink]

I just thought I would bump this. The Thais don't have a problem with household debt the UK has a problem with household debt.

Why? Westerners have mortgages which tend to be, say, 30% of gross monthly income. That list merely says that if someone in the US makes $US100,000 per year, he has a total debt of $130,000. That would be house, cars - whatever. Western banks don't engage in usury the way Thai banks do either. You get quoted an interest rate and that's all you pay. At least in the US, it is illegal for a bank to refuse early payoff without penalty. You pay interest for the total dollar days only.

Now, at today's interest rates, if he had a $100,000 mortgage, the payments would be just maybe $1,000 a month including taxes and insurance, leaving him at least $7,000 a month to live on! If he also had $30,000 in car loans, the payments would be maybe $500 a month total. Now the poor fool has only maybe $6,500 left!!!!!

How many Thais have $US6,500 left after housing and transportation?

Oh, and the Westerner's cell phone bill, as a percentage of his income is so low it's off the radar.

That is a classic list of apples and oranges.

You make some reasonable points in your earlier posts but with this one you are just picking random (and unrealistic) figures out of the air to justify your point of view. The average annual salary in the US is nowhere near $100,000, in fact it is less than half that. Furthermore, somebody with a salary of 100k a year is more likely to have a mortgage of around 4-500k, not 100k, so your calculations are largely irrelevant.

Your earlier comments about banks in the US demanding 20% down and performing credit checks before approving mortgages makes the whole industry sound eminently respectable and beyond reproach but neatly glosses over the whole sub-prime mortgage mess which originated in the US and spread economic gloom across the globe a few short years ago. They were not always this responsible.

I agree that there are relatively few Thai people who have a monthly disposable income after housing and transportation of $6,500 but to make out that the average man in the street in the USA has this amount of cash on the hip is completely misleading - it just isn't the case. The majority of Americans do not even earn a gross salary of $6,500 a month, let alone have that much to spend after basic expenses and taxes are paid.

[inthepink]

Thai house holds with debt only captures those households who have debt, Thai household debt captures those households with no debt as well as those with debt. Those households with no debt would artificially reduces the figure you quoted.

The same goes for household debt figures from any country in the world so I fail to see what your point is?

[lujanit]

I think that the flood last year has had a large impact on household debt and home ownership. In the moobaan where we live 20% of the houses are abandoned. There are about 250 houses in this moobaan. I started to ask about this much earlier this year when it became obvious that all these houses were empty. It appears that a lot of people are so far in debt with their mortgage that the value of the house is less than the debt. Plus then the houses had to be all renovated; no money for that. So the easy way out was just to move out and leave the bank or whatever lender holds the mortgage to sort it out.

Many of the houses here are still not fully renovated even though they are lived in.

[cheeryble]

Many Thais have more money than people in the west because they do not pay any taxes and they live many family members in one house and maybe share a car. They do not have the many expenses we have in the west such as insurance, mortgage, property taxes etc etc.

Is the wrong answer!

Most Thai's own land in some shape and form and all have to pay taxes on that land each year or else they will loose it, mostly true in the case of non-chanotte land. And any Thai who has a job and is paid a salary is subject to PAYE equivelent and is taxed at source.

..

Land taxes though recently raised are still very low.

I believe income tax isn't due under 350,000pa so if there is PAYE they must be returning it all to nearly all the payers which would seem odd.

Edited October 24, 2012 by cheeryble

[Tywais]

I believe income tax isn't due under 350,000pa so if there is PAYE they must be returning it all to nearly all the payers which would seem odd.

It's 240,000 Baht pa

[n0mad]

I think that the flood last year has had a large impact on household debt and home ownership. In the moobaan where we live 20% of the houses are abandoned. There are about 250 houses in this moobaan. I started to ask about this much earlier this year when it became obvious that all these houses were empty. It appears that a lot of people are so far in debt with their mortgage that the value of the house is less than the debt. Plus then the houses had to be all renovated; no money for that. So the easy way out was just to move out and leave the bank or whatever lender holds the mortgage to sort it out.

Many of the houses here are still not fully renovated even though they are lived in.

Not saying this isn't true but just some perspective, my father in law bought a house 2 yrs ago in an estate of unknown size to me but decent size from when i visited. He has not lived in it or renovated it since he bought it. He is in the Navy and lives at the technical School in Bangkok where a lot of people in the community also bought there and are in similar positions.

my point, it's possible some are living else where and just biding their time, my FIL wanted to renovate this yr but was scared there might be more floods so decided to wait until a more convenient or necessary time arose. I tried to get him to renovate and rent it out but this seems ridiculous to him... so frustrating

[DDBKK]

I don't have time to read to read all pages so i can only hope that someone has already mentioned how black markets operate on a national scale and how our understanding of western economics do not apply to a country that for most part does not pay tax.