BOT still monitoring personal loans in non-bank sector in fear this could loom into overspending by household sector

The Bank of Thailand is still monitoring personal loans in the non-bank sector, after it found continual expansion, and fears that this may lead to overspending by the household sector.

In its inflation report for January this year, the Bank of Thailand noted that figures of expansion of industrial loans and consumption loans were directly in contrast. Industrial loan growth slowed down while consumer loan growth accelerated and this may lead to more borrowings by households for spending purposes. However, data on personal loans compiled from the commercial banks and finance companies sectors indicated that expansion grew only slightly and has been stabilizing, and thus did not reflect imbalance. Nevertheless, the central bank deems that personal loans from non-bank businesses have to be closely monitored as this category has yet to show signs of slowdown in expansion.

Source: Thai National News Bureau Public Relations Department - 06 Febuary 2006

However, data on personal loans compiled from the commercial banks and finance companies sectors indicated that expansion grew only slightly and has been stabilizing, and thus did not reflect imbalance. Nevertheless, the central bank deems that personal loans from non-bank businesses have to be closely monitored as this category has yet to show signs of slowdown in expansion.

Source: Thai National News Bureau Public Relations Department - 06 Febuary 2006

It's funny to see the contrast between this version and the one published by Bangkok Post (from the same BOT report):

"Consumer loans grew 18.4% year-on-year to 916.6 billion baht outstanding, compared with 8.2% growth to 1.55 trillion baht in manufacturing credit at the end of the third quarter."

+18.4... well this is not what we could call "stabilizing".

The explanation, rather strange, given by BOT : " The integration of Tisco Bank into the banking system, in particular, has increased the total of personal loans significantly, the report said."

So to summarize the logic : businesses start to reconsider loans because of increase interest rates, but not the consummers.

A good friend of mine here in Thailand allowed his Thai wife to get two credit cards. She bought all kind of things she definitely didn't need and both cards were soon to their max limits. She pays the very minimum payments. He says he is NOT paying for her credit card debts.

It is something that worries me. We took out a mortgage on our new place in BKK solely because rates were so ridiculously cheap. Off the top of my head we're paying about 3.6% for the first year, then 4.5% for the next 2, then it floats at MLR+200bp for the remaining 7 years. We don't need the mortgage, but at a fixed rate lower than 3m BIBOR (indeed the 10yr swap rate is trading around 6%), it's silly not to take it out. The crazy thing is that after the 3 year fixed term, there are no early-redemption penalties, so we'll just pay back the loan then. Similar with the new car. We're paying 2.79%! Again, we'll pay back the rest of the loan as soon as it bumps to a floating rate and the penalty reduces.

What scares me is that many people may get into these deals without properly considering what happens when the rate floats. Assuming that rates stay the same (which I don't think they will), in 3 years' time, our mortgage rate jumps from 4.5% to a whopping 8.75% (MLR+200). It's at this point many people might get into trouble. And of course if that happens on a larger scale, it could affect the economy as a whole.

Mr. Kotom is satisfied with the govt's improving Thailand's economy

National Economic and Social Advisory Council President Kotom Ariya (โคทม อารียา) is concerned over the high households’ debt. However, he is satisfied with the the government’s effort in improving Thailand’s economy.

Prime Minister Thaksin Shinawatra earlier disclosed the government's accomplishments during his five-year period in office. Mr. Kotom has indicated that the details revealed by Dr. Thaksin are similar to the Bank of Thailand’s (BOT) information.

He also talked about the Thai-US FTA deal, saying that he is making a report of his study over the pact. He said that the complete report will be proposed to the meeting of the National Economic and Social Advisory Council on February 23rd, and then, it will be presented to the Cabinet.

Source: Thai National News Bureau Public Relations Department - 09 Febuary 2006

What scares me is that many people may get into these deals without properly considering what happens when the rate floats. Assuming that rates stay the same (which I don't think they will), in 3 years' time, our mortgage rate jumps from 4.5% to a whopping 8.75% (MLR+200). It's at this point many people might get into trouble. And of course if that happens on a larger scale, it could affect the economy as a whole.

This is exactly the weak point of Thaksin's policy : boost consumption by boosting loans... And pray that the rates remain low.

The problem is : Thailand has to watch its currency. So the biggest trap is oil. If oil prices go up, it will put a big weight on the trade balance (already in deep red in 2005) and inflation, forcing the BOT to increase rate... What a dilemna.

USA and Euro zone can cheat for a while with fundamentals... Thailand simply can't.

Since several month, the government tries all the tricks to curb inflation (like dust under the carpet). But it's short time policy. The best example : the gasoline subsidize (that ended last summer, leaving a debt of 100 billions THB !Same with the policy toward farmers, with high price for rice etc.).