Household debt keeps Thailand Southeast Asia's sick man

[webfact]

Household debt keeps Thailand Southeast Asia's sick man

AFP

BANGKOK: -- Sinking in heavy repayments to loan sharks, Non says payday is nothing more than a cruel reminder of his dire finances.

Household debt has surged to alarming levels in Thailand; just one of a welter of issues dragging on the economy despite a vow by the ruling junta to revive the kingdom's fortunes.

"I have more outgoings than income," Non, a 37-year-old tyre factory worker tells AFP from his modest family home on the outskirts of Bangkok.

"Each month, 30 to 40 percent of my salary goes solely towards repaying the interest on my loans," he adds.

Thai households are among the region's biggest borrowers, a credit binge stoked by populist policies and low bank interest rates -- but also low wages that keep the poor perilously close to the breadline and make them ready bait for illegal loan sharks.

The debt levels are worrying the generals who seized power last May promising to end a near-decade of political turmoil and restore zip to Thailand's once-dynamic economy.

The country narrowly avoided recession during protests against the ousted administration of Yingluck Shinawatra, which paralysed government spending and frightened off tourists and investors.

Nine months after the military power grab, signs of economic recovery are still few with fourth quarter GDP figures, to be released on Monday, expected to come in at around 0.8 percent for 2014.

There is some good news, with tourism arrivals bouncing back despite martial law, and exports -- which account for around 60 percent of the economy -- showing a slight improvement.

Yet two key Thai commodities -- rice and rubber -- are currently at record low prices and the country is flirting with deflation.

And with the political outlook still uncertain, consumer confidence remains depressed as Thais hold off from buying flats, cars and durables.

- 'Dangerous debt' -

At the heart of that malaise lies Thailand's eye-wateringly high household debt.

"Thailand has seen one of the sharpest surges in household debt in the region, with the debt-GDP ratio rising from 60 percent to 85 percent over the past five years," Krystal Tan, an analyst with Capital Economics, told AFP.

Low interest rates and widespread access to credit through banks and illegal loans have led to a deeply ingrained culture of borrowing over the past decade.

But policies by the previous government -- including a huge tax rebate scheme for first-time car buyers -- have also encouraged millions to take out loans that they are now struggling to repay.

The debt ratio is worrying the junta, which has pushed back the timeline for a restoration of democracy until 2016 and pegged its legitimacy to steering an economic revival.

"Please refrain from racking up debts," junta leader Prayut Chan-O-Cha told viewers in a recent edition of his weekly televised address, warning mounting bills "may slow down the country's progress."

Non's family is typical of those living beyond their means.

In 2011, the region was hit by huge floods that destroyed their fridge, television and furniture.

Non borrowed to replace those items, partly from his bank, but mostly from illegal loan sharks who charge interest rates of between 10 and 20 percent.

He just about managed his debts until the factory cut his hours as the economy slumped.

Now, he needs to find 20,000 baht ($610) each month to pay his bills. But his salary brings him just 14,000 baht. So the debts keep mounting.

It is a story all too familiar to Suthila Leenkam from a local non-governmental organisation the Arom Pongpangan Foundation.

"The debt situation is getting worse," she says. "It leads to more family problems and to more divorces because people are in debt," she said.

- Spend, spend, spend -

Analysts tip the government to spend its way out of trouble, despite a vow to tighten the purse strings after what it says were years of profligacy from elected civilian governments.

The military has promised to unleash billions of dollars on much-needed infrastructure projects.

But the money is yet to kick into the economy.

As Barclays Capital put it in a note last month: "The main impediment to growth at present is the slow pace of fiscal spending, which is also delaying investment and consumption decisions."

Earlier this month, the finance minister said he had been told by Prayut to aim for at least 4.0 percent GDP growth this year.

But the World Bank says growth will only hit 3.5 percent in 2015 and 4.0 percent next year.

Already squeezed by months of bad economic news, those at the bottom of the ladder are hoping for an upturn in fortunes.

"Working class Thais, like vendors and workers, struggle to earn enough money and their incomes are no longer sufficient to cover their expenses," Narong Petprasert, economics professor at the University of Bangkok, told AFP.

-- (c) Copyright AFP 2015-02-11

[Jay Sata]

I see loads of newly built unoccupied shophouses everywhere.

The hangover after the party looms.

[angiolo]

in the uk we had a big problem when people had bank cards to draw from atm machines. people used this facility with gay abandon. got heavily in debt. could not easily repay the loans. the Uk entered a deep recession . which lasted several years. this was in the 1980s . Many people lost their jobs and could not pay of their house mortgages. Houses were taken by the building societies.

[HeijoshinCool]

The average Thai is now deeply in debt.

I guess that makes Thailand a first world country after all.

[The manic]

This kind of household debt keeps the bar scene full of available girls. Guess who run, organise and own the bars and brothels?

[Just1Voice]

I see loads of newly built unoccupied shophouses everywhere.

The hangover after the party looms.

Agreed. Here in Chiang Mai, over the past couple of years, I've seen hundreds and hundreds of new shop houses go up, and they are virtually standing empty. Not far from where I live, I've seen well over 200 units go up in various places, with maybe 1 in 20 being occupied. But they still keep building them.

[chopin2]

And the condominium/housing prices that keeps going up up up, when is it going to crash? It must be a huge bubble by now.

[Jay Sata]

I should also say that there appears to be an oversupply of hotels everywhere.

I am now paying less than last year and in most they are half full.

I overheard a conversation with an owner of two hotels in the lobby where I am staying.

He was talking with some bankers from Bangkok and trying to make excuses on why he was three months late

with his interest payments.

There are empty condos in all the major cities but with price tags of a couple of million how does the average Thai on 15-20000 baht a month even look at buying?

Look up at the blocks at night and see how many have lights.

[apetley]

One of wife's friends is a teaching asset earning 10k a month. Just bought a brand new pickup over 7 years at 7k bht a month.

If he still has it in a year I'll be amazed.

The irresponsible lending of money is part of the problem.

[pinkpanther99]

One of wife's friends is a teaching asset earning 10k a month. Just bought a brand new pickup over 7 years at 7k bht a month.

If he still has it in a year I'll be amazed.

The irresponsible lending of money is part of the problem.

I agree with this.

I never understand how banks and other financial institutions seem so willing to lend low income earners in Thailand so much money.

Lenders should be held accountable for Thailand's raising household debt.

[givenall]

People should recognize that their loan interest rates is effectively higher by 7%, since every payment they pay additional 7% vat on the total payment. Even they already paid vat on the whole amount when they purchase the item. Essentially they pay vat 2x

[Camelot]

This is what happens when populist policies and government giveaways create a sense of entitlement and the mad scramble for shiny new toys replaces thrift, saving for a rainy day and living within ones means.

[Tomtomtom69]

One of wife's friends is a teaching asset earning 10k a month. Just bought a brand new pickup over 7 years at 7k bht a month.

If he still has it in a year I'll be amazed.

The irresponsible lending of money is part of the problem.

True, how is anyone supposed to survive on 3000 a month after spending 7000 per month on repayments on a new pickup? Not to mention the yearly costs of 1st class insurance (compulsory when you are financing a new car), road tax and of course fuel. As long as your wife's friend doesn't drive much, he will barely be able to survive over the next 7 years, otherwise he'll be borrowing money from some source just to live, due to the irresponsible decision to allow him to buy a new pickup on his meager income. OK, sure, he probably only got one of the more basic models and not the top of the line 4x4 dual cab, whose repayments on a 5-year loan are already in the region of 13,500-15,000 or so, but even his single cab or extra cab basic model is way out of his reach. With an income of say 20,000 a month he'd still be struggling and I think only with an income of say 25,000+ would he comfortable with this sort of debt. But hey, I'm not a Thai lender.

[clockman]

I see loads of newly built unoccupied shophouses everywhere.

The hangover after the party looms.

Agreed. Here in Chiang Mai, over the past couple of years, I've seen hundreds and hundreds of new shop houses go up, and they are virtually standing empty. Not far from where I live, I've seen well over 200 units go up in various places, with maybe 1 in 20 being occupied. But they still keep building them.

Well, the drug money or stolen money. Has to be laundered, somewhere?

[baboon]

I see loads of newly built unoccupied shophouses everywhere.

The hangover after the party looms.

Agreed. Here in Chiang Mai, over the past couple of years, I've seen hundreds and hundreds of new shop houses go up, and they are virtually standing empty. Not far from where I live, I've seen well over 200 units go up in various places, with maybe 1 in 20 being occupied. But they still keep building them.

Thing is, it isn't just your Chiang Mais, Pattayas and Hua Hins experiencing this building explosion, it is run of the mill towns like Chumphon, too. I can't speak for Isaan, but I suspect it is the same there(?) Who do the developers anticipate will buy these places?

[GarryP]

I know several blue collar workers who have not invested in property or four wheel transport. Their motorcycles are fully paid for and they live in cheap rented accommodation. But as soon as their OT was cut, they could no longer live on their meager earnings and from time to time ended up in debt to loan sharks. How the hell they can expect to save to buy a house for their family in the future I do not know. A very bleak existence indeed.

[jethro69]

One of wife's friends is a teaching asset earning 10k a month. Just bought a brand new pickup over 7 years at 7k bht a month.

If he still has it in a year I'll be amazed.

The irresponsible lending of money is part of the problem.

I agree with this.

I never understand how banks and other financial institutions seem so willing to lend low income earners in Thailand so much money.

Lenders should be held accountable for Thailand's raising household debt.

I might be wrong with my theory, but after all, the banks want some kind of security. Guess what is the security, might it be a house, a plot of land. I do heavy believe that the bank is not even interested in people to repay, but rather behind people's property, they could not lay their hands on otherwise. And take a guess who are the reedy <deleted>..s behind the banks.

[Dogbreath]

I have met more than one Thai who was ridiculously indebted. Some you can chalk up to lack of financial basics and a good deal of it to "easy money". Last week I met a Thai woman in her early forties who has a very good job with a multinational company. She is involved heavily in financial aspects of the business so you would think she would know better. Her salary is around 45K baht/mo. Condo payment 20K Car payment 25K. She hasn't had a bite to eat yet, paid the electric, or put gas in the car and she's already 100% underwater. And she has a daughter in university ! You can guess how the shortfall is taken care of. My wife has a nephew who is a factory worker making a shade over 10K baht/mo and he has a 7K truck payment.

Easy money and greed of vendors kicking the can down the economic highway will end in disaster. Look what it did to the USA. They still haven't recovered.

[Jay Sata]

When I first arrived in Thailand 15 years ago there was semi developed property and abandoned shop houses every where.

That was after the last crash and wages have increased little in that period.

When I read threads on here with suggestions of farmland in the back of beyond 'worth' 500k a rai I laugh.

This is Thailand not England.

[Dogbreath]

One of wife's friends is a teaching asset earning 10k a month. Just bought a brand new pickup over 7 years at 7k bht a month.

If he still has it in a year I'll be amazed.

The irresponsible lending of money is part of the problem.

I agree with this.

I never understand how banks and other financial institutions seem so willing to lend low income earners in Thailand so much money.

Lenders should be held accountable for Thailand's raising household debt.

I might be wrong with my theory, but after all, the banks want some kind of security. Guess what is the security, might it be a house, a plot of land. I do heavy believe that the bank is not even interested in people to repay, but rather behind people's property, they could not lay their hands on otherwise. And take a guess who are the reedy <deleted>..s behind the banks.

You may be right about real estate, but depreciating consumer goods, such as cars and appliances are lousy collateral. The banks don't want this stuff back. They lose their a$$ on this type of lending when the economy turns south, which is the direction Thailand's economy seems to be headed. A smoke and mirrors economy will not stand for long; even in a country renowned for smoke and mirrors.

[wabothai]

Many don't know how to budget and manage finance.

Here the GREEDY and ruthless bank managers and ceo's are the guilty ones, leading the ignorant into bankruptcy or worse.

Nothing new !!!

They don't manage, they destroy lives.

[mommysboy]

Thai govs are notoriously frugal; to be polite. The only one that wanted to invest in public infrastructure projects got the bum's rush double quick.

[Jay Sata]

The other big problem for the economy is the oversupply of big building outlets,furniture and home stores.

These rely on people moving house or buying a new places to live.

However unlike the UK or USA where old property is attractive there is no renovate and sell market here.

I walk in to these big sheds with dozens of workers and a handful of customers and wonder how their business model works.

[elgordo38]

I see loads of newly built unoccupied shophouses everywhere.

The hangover after the party looms.

Agreed. Here in Chiang Mai, over the past couple of years, I've seen hundreds and hundreds of new shop houses go up, and they are virtually standing empty. Not far from where I live, I've seen well over 200 units go up in various places, with maybe 1 in 20 being occupied. But they still keep building them.

The big project over by Santitam market has been finished for some time now and I go by twice weekly. The inside of the windows of most units are covered with that sticky paper that must be peeled off. Most of the windows are still covered on the inside and the parking lot looks empty.

[lungbing]

I've often wondered about the big shed DIY shops with dozens of workers and a handful of customers.

Especially when there's only one till open and a queue to pay.

And by the way, Khon Kaen is full of new empty shop houses too.

[elgordo38]

This is what happens when populist policies and government giveaways create a sense of entitlement and the mad scramble for shiny new toys replaces thrift, saving for a rainy day and living within ones means.

Populist policies are a world wide epidemic. Its the carrot that the politicians must feed the rabbit that votes for them. There are few people left like the black man I watched on Fox (awful news show) He spent 4 hours walking to and from work for the past 10 yrs. This kind of mentality is long gone. It died with my grandparents. We have become a handout world not a hand up one.

[Jungle Jim]

New empty buildings everywhere. Apartments, hotels, shops, condos. Notice how many new cars are on the road that no one can afford ? Mark my words a huge crash is coming within a year. Mass tourism and materialism will destroy this country. A serious big bubble is about to blow up in the Thais faces.

[arthurwait]

I see loads of newly built unoccupied shophouses everywhere.

The hangover after the party looms.

Agreed. Here in Chiang Mai, over the past couple of years, I've seen hundreds and hundreds of new shop houses go up, and they are virtually standing empty. Not far from where I live, I've seen well over 200 units go up in various places, with maybe 1 in 20 being occupied. But they still keep building them.

Thing is, it isn't just your Chiang Mais, Pattayas and Hua Hins experiencing this building explosion, it is run of the mill towns like Chumphon, too. I can't speak for Isaan, but I suspect it is the same there(?) Who do the developers anticipate will buy these places?

Didn't you hear everyone was abandoning Bangkok to move to the Esarn ?

More spin that the idiots believed, there must be many farangs on here that now realise their 'wives' nakon nowhere land is infact still worthless and always will be.

[trogers]

Lenders either cannot or would not see the total debt profile of their borrowers.

They make a decision to lend based only on repayment amount of the proposed loan vs present income, with no consideration as to what other debts the borrower may be servicing.

Singapore was also in such a situation until the government came out to force lenders to consider the total debt profile of those applying for loans.

[Jay Sata]

I see loads of newly built unoccupied shophouses everywhere.

The hangover after the party looms.

Agreed. Here in Chiang Mai, over the past couple of years, I've seen hundreds and hundreds of new shop houses go up, and they are virtually standing empty. Not far from where I live, I've seen well over 200 units go up in various places, with maybe 1 in 20 being occupied. But they still keep building them.

Thing is, it isn't just your Chiang Mais, Pattayas and Hua Hins experiencing this building explosion, it is run of the mill towns like Chumphon, too. I can't speak for Isaan, but I suspect it is the same there(?) Who do the developers anticipate will buy these places?

Didn't you hear everyone was abandoning Bangkok to move to the Esarn ?

More spin that the idiots believed, there must be many farangs on here that now realise their 'wives' nakon nowhere land is infact still worthless and always will be.

Why would people in Bangkok abandon the area?

If they wanted to find higher ground there is plenty in Korat long before Issan.

Like all bubbles the rumours spread about inflated values.

Then reality kicks in and the crash comes again.

Spain,Greece etc built their economies during the 70,s and 80,s thinking the tourists would always come.

Sadly that proved to be incorrect.

The Thai tourism bubble will burst when Burma opens up those beautiful unspoilt beaches on the Andaman coast. Let's face it it has the same climate,people temples and food as Thailand.