Thai households in dire need to reduce their debt burden: Allianz

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Not even in Thailand, money really grows on trees

Thailand’s household-debt-to-GDP ratio has reached an unhealthy level, global insurance giant Allianz Group said at the recent presentation of its new “Global Wealth Report” in Bangkok. The report, which puts the asset and debt situation of households in more than 50 countries under the microscope, found that – given the thin financial cover of many Thai households – making efforts to reduce the debt burden was “absolutely necessary:”

Over the past decade , the debt ratio in Thailand rose from 45.1 per cent to 81.6 per cent of GDP, with loan growth regularly surpassing that of GDP in the last 10 years,

The development of the assets-to-GDP ratio was less dynamic: It increased from 107.9 per cent in 2005 to 119.2 per cent at the end of 2015 – leaving Thai households with the worst assets-to-liabilities-ratio of all analysed Asian countries at a mere 1.5.

in plain figures, household debt currently stands at a total of to 10.8 trillion baht ($312 billion), according to Bank of Thailand data. This means that the average family in Thailand is close to 300,000 baht ($8,730) in debt.

A study by University of the Thai Chamber of Commerce found that household debts increased by an average of 20,000 to 30,000 baht a year over the past nine years, but in 2015, the debts increased by around 50,000 baht per household by average, and repayment instalments were averaging 14,889 baht each month.

Findings of the study also show 74 per cent of the debtors defaulted on their repayments because their earnings are not enough to repay the debts.

This is made worse by the fact that a sizeable part of the debt is owed for consumer loans used for cars, credit card debt, tuition fees for children and personal expenses with no collateral, while mortgages make another part.

And even more worrying, loan sharks are getting the lion’s share of households debt in Thailand at around 60 per cent even. This means that even in a low-interest environment people prefer “informal” lenders over banks which could help restructure their debts. Loan sharks, in turn, usually keep title deeds on land or houses as collateral for a consumer loan and have no scruples to take over the assets and evict the families.

This share of informal loans grew from 48.5 per cent in 2009, which reflects a couple of problems: 1) More people become loan defaulters, are subsequently rejected by banks and forced to use the services of loan sharks, 2) a large number of people doesn’t possess the financial literacy to calculate the risk of their exposure to extortionate rates of interest on “informal” loans 3) People miss out on bank assistance and advice with regards to financial planning and family budgeting, 4) with most loans related to cars, credit cards and personal consumption, there are no or quickly depreciating underlying assets which means that such loans, together with the high interest demanded, make borrowers quickly poorer.

How financial literacy can help shows the following comparison: Loan sharks always express the interest terms in percentage per week or month, which at first sight probably doesn’t look too high. But accumulated, it in fact looks devastating.

According to various sources, loan sharks demand ten per cent per month in interest, which makes 120 per cent per year. Other interest rates charged are reportedly three per cent on a daily basis, which is equivalent to 1,095 per cent a year.

In comparison: The interest rate on personal loans that Thailand’s banks currently charge are between 14 and 20 per cent annually for personal loans with collateral, and up to a maximum of 28 per cent annually for unsecured loans.

 

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Reading Time: 2 minutes

Not even in Thailand, money really grows on trees

Thailand’s household-debt-to-GDP ratio has reached an unhealthy level, global insurance giant Allianz Group said at the recent presentation of its new “Global Wealth Report” in Bangkok. The report, which puts the asset and debt situation of households in more than 50 countries under the microscope, found that – given the thin financial cover of many Thai households – making efforts to reduce the debt burden was “absolutely necessary:”

Reading Time: 2 minutes

thailand-money-tree
Not even in Thailand, money really grows on trees

Thailand’s household-debt-to-GDP ratio has reached an unhealthy level, global insurance giant Allianz Group said at the recent presentation of its new “Global Wealth Report” in Bangkok. The report, which puts the asset and debt situation of households in more than 50 countries under the microscope, found that – given the thin financial cover of many Thai households – making efforts to reduce the debt burden was “absolutely necessary:”

Over the past decade , the debt ratio in Thailand rose from 45.1 per cent to 81.6 per cent of GDP, with loan growth regularly surpassing that of GDP in the last 10 years,

The development of the assets-to-GDP ratio was less dynamic: It increased from 107.9 per cent in 2005 to 119.2 per cent at the end of 2015 – leaving Thai households with the worst assets-to-liabilities-ratio of all analysed Asian countries at a mere 1.5.

in plain figures, household debt currently stands at a total of to 10.8 trillion baht ($312 billion), according to Bank of Thailand data. This means that the average family in Thailand is close to 300,000 baht ($8,730) in debt.

A study by University of the Thai Chamber of Commerce found that household debts increased by an average of 20,000 to 30,000 baht a year over the past nine years, but in 2015, the debts increased by around 50,000 baht per household by average, and repayment instalments were averaging 14,889 baht each month.

Findings of the study also show 74 per cent of the debtors defaulted on their repayments because their earnings are not enough to repay the debts.

This is made worse by the fact that a sizeable part of the debt is owed for consumer loans used for cars, credit card debt, tuition fees for children and personal expenses with no collateral, while mortgages make another part.

And even more worrying, loan sharks are getting the lion’s share of households debt in Thailand at around 60 per cent even. This means that even in a low-interest environment people prefer “informal” lenders over banks which could help restructure their debts. Loan sharks, in turn, usually keep title deeds on land or houses as collateral for a consumer loan and have no scruples to take over the assets and evict the families.

This share of informal loans grew from 48.5 per cent in 2009, which reflects a couple of problems: 1) More people become loan defaulters, are subsequently rejected by banks and forced to use the services of loan sharks, 2) a large number of people doesn’t possess the financial literacy to calculate the risk of their exposure to extortionate rates of interest on “informal” loans 3) People miss out on bank assistance and advice with regards to financial planning and family budgeting, 4) with most loans related to cars, credit cards and personal consumption, there are no or quickly depreciating underlying assets which means that such loans, together with the high interest demanded, make borrowers quickly poorer.

How financial literacy can help shows the following comparison: Loan sharks always express the interest terms in percentage per week or month, which at first sight probably doesn’t look too high. But accumulated, it in fact looks devastating.

According to various sources, loan sharks demand ten per cent per month in interest, which makes 120 per cent per year. Other interest rates charged are reportedly three per cent on a daily basis, which is equivalent to 1,095 per cent a year.

In comparison: The interest rate on personal loans that Thailand’s banks currently charge are between 14 and 20 per cent annually for personal loans with collateral, and up to a maximum of 28 per cent annually for unsecured loans.

 

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