Consumers rack up holiday shopping debt

Consumers rack up holiday shopping debt

Non-performing loans on the increase

PARISTA YUTHAMANOP

The holiday shopping spree is coming at a cost to consumers, who are racking up ever-increasing amounts of debt, said a recent Bank of Thailand statement.

Consumer credit was behind the banking system's credit growth of 2.6% in 2007, as the lacklustre economy resulted in flat corporate loan growth.

Household debts were hitting low-income households due in part to policies of the Thaksin Shinawatra government from 2001-05 to boost consumption. In 2003 the central bank reined in consumer credit for low-income groups by setting a higher minimum-salary requirement, instituting an interest rate cap and raising the minimum payment requirement.

A recent survey showed that personal loans were concentrated in household groups with monthly incomes of lower than 15,000 baht.

Households with incomes of less than 5,000 baht had loans double that of their income.

One executive at Kasikorn Research Center who asked not to be named said the delinquency problems could be higher than what the data showed because lenders force borrowers to refinance credit-card debts with cash debt after three months of delinquency.

The executive said inadequate financial literacy had caused financial indiscipline and had contributed to swelling consumer debt.

For instance, some credit card users believed that the 20% interest rate specified by the central bank was applied on a one-off basis.

In fact, the interest rate is applied to each balance until the debt is completely repaid.

Thanavath Phonvichai, director for the Economic and Business Forecasting Center of University of the Thai Chamber of Commerce (UTCC), said that non-performing consumer loans would not threaten the economy because the number of credit card holders and the total amount of NPLs accounted for a small ratio of the economy's total consumption.

Given that there are around 10 million credit cards circulating and each person holds three cards on average, this would mean just three million card holders.

Credit card NPLs stand at just 5-10% meaning that there are just 150,000 NPL cardholders.

He said that this would have only a limited impact on total consumption.

Based on a survey by the UTCC, most of the holders of defaulted consumer loans earn less than 20,000 baht per month.