Five-Car Families Seen Deterring Thai Rate Cuts: Southeast Asia

Five-Car Families Seen Deterring Thai Rate Cuts: Southeast Asia

Chitwalai Srisaengchai bought a car last year to take advantage of a Thai tax rebate and now spends 70 percent of her salary on the loan. She’s also giving the central bank another reason to resist monetary easing.

Prime Minister Yingluck Shinawatra’s stimulus measures have stoked spending and contributed to rising household debt, prompting the Bank of Thailand to say it will monitor “persistently high” credit growth. About 1.25 million Thais have taken up the car-buying incentive the government introduced to boost domestic consumption after the 2011 floods, helping drive local car sales to a record last year.

“It was a very tempting offer,” said Chitwalai, a 27- year-old English teacher in Bangkok who will receive a 100,000- baht ($3,400) rebate on a black Mazda 2 sedan she bought for 705,000 baht, adding to her family’s four cars. “Something like this may not happen ever again, so I had to do it.”

Chitwalai’s purchase highlights why Thailand’s central bank may resist government pressure to cut interest rates tomorrow as Yingluck seeks to sustain growth. Lower borrowing costs may spur demand for personal loans that jumped 22 percent in 2012, the biggest increase in seven years, adding debt risks that threaten to heighten the economy’s vulnerability to a slowdown.“The BoT has already sounded warnings and is likely to pursue a more moderate pace of consumer-loan growth,” said Eugene Leow, an economist at DBS Group Holdings Ltd. in Singapore. “The fast pace of consumer debt accumulation could lead to an increase in non-performing loans when the cycle turns. It suggests the policy rate is not going lower.”

Cool Inflows

The baht has risen 4.3 percent against the dollar this year. On March 20 it reached the strongest level since the currency’s devaluation in July 1997 sparked the Asian financial crisis. The benchmark SET Index rose to its highest since 1994 on March 15.

Finance Minister Kittiratt Na-Ranong last month reiterated his call for lower rates and a weaker currency to cool inflows and help exporters. Central bank Governor Prasarn Trairatvorakul has said no special measures are needed to stem inflows, even as he added that the baht has strengthened too fast recently.

Automakers Nissan Motor Co. and Toyota Motor Corp. have stepped up production in Thailand as the tax rebates boosted demand. Fitch Ratings raised its assessment of the nation last month, citing a resilient economy and a more stable political climate, while the central bank said in March it may raise its gross domestic product estimate for this year to more than 5 percent after faster-than-estimated growth in the fourth quarter.

‘Tough Call’

“It will be a tough call for the central bank, with the baht strength and pressure from the government,” said Santitarn Sathirathai, a Singapore-based economist at Credit Suisse Group AG. “The better economic growth outlook and the sharp growth in personal loans show that no further easing is needed.”

Seventeen of 18 economists in a Bloomberg survey predict borrowing costs will be held at 2.75 percent for a fourth meeting tomorrow. One expects a quarter percentage-point cut.

Average Thai household debt rose from 82,485 baht per household in 2002 to 134,900 baht in 2011, according to the National Statistics Office. The rebate program has cost the state about 90 billion baht, according to government estimates.

The government’s increased spending has resulted in a slow deterioration in its balance sheet and the “high-speed credit growth” could pose financial risks for Thailand, Kim Eng Tan, senior director at Standard & Poor’s, said on Jan. 24.

Loan Defaults

The central bank will closely monitor risks stemming from “the ongoing high credit growth, particularly for consumer credit, as well as a surge in household debts which have had some effects on households’ debt servicing abilities,” the monetary policy committee said in the minutes of its Feb. 20 meeting published on March 6.

The Thai excise department set up a team of 10 in February to monitor delinquency after a number of buyers defaulted on their loans, said Director-General Somchai Poolsavasdi. So far, about 2,000 have dropped out, he said, adding that “the number is still very small, so we are not worried.”

Personal loans without repayment for more than three months rose 20.5 percent to 56.6 billion baht, or 22.3 percent of total bad debt in the fourth quarter, according to central bank data.

Household savings grew 0.7 percent in 2011 compared with a 12.8 percent pace in 2010, according to the National Economic and Social Development Board. About 45 percent of Thai households, or 9.09 million people, can’t save because their expenses and debt exceed their incomes, according to NESDB.

Savings Rate

“We have to monitor household debts closely because they continue to rise and our savings rate is very low,” said Suwannee Khamman, deputy secretary-general of the NESDB.

While Chitwalai said she’s relieved to finally have her own car to drive to work in, for some first-time buyers, the euphoria has faded with the pressure of monthly payments.

“It would have been wiser for me to wait longer and save more money to buy a car,” said Sureephon Withitkul, a 24-year- old officer at Federal Express Corp. She bought a car under the rebate program last year and now spends half her monthly salary on installments. “It’s difficult to make ends meet.”

To contact the reporter on this story: Suttinee Yuvejwattana in Bangkok at

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (, the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: