Thailand's swelling household debt must be monitored, as consumer leverage could be at the root of a downturn in next year's economic growth, warns Singapore's United Overseas Bank (UOB).
"Consumer leverage is building up in Thailand in housing, car loans and personal credit cards, and if we're not careful, the
Consumer leverage could be at the root of a downturn in next year’s economic growth, warns Mr Koh. PATTANAPONG HIRUNARD
next crisis in Asia will be one of consumer overlap," Jimmy Koh, the head of research and investor relations, said in Bangkok on Thursday.
He said each financial crisis stems from leverage.
An overleverage in corporate debt was the main cause of the 1997 Asian financial crisis, banking overleverage resulted in the 2008 US subprime crisis, and skyrocketing public borrowing caused the 2012 European sovereign debt crisis, said Mr Koh.
And the problem is not only occurring in Thailand, as high property prices are the result of consumer leverage in China and Singapore, he said.
However, regulatory policymakers across Asia are aware of this problem and have pre-emptively implemented measures to manage asset price inflation and consumer credit.
As of the first quarter, Thailand's household debt had increased to 8.97 trillion baht or 77.5% of gross domestic product compared with 1.36 trillion or 28.8% during the 1997 crisis.
Mr Koh is not the only one who is wary of Thailand's rising household debt, as the Bank of Thailand has been warning of the problem for months.
Local banks have also tightened their loan approval criteria to keep non-performing loans from surging.
Mr Koh blamed the recent capital outflows on the US Federal Reserve possibly paring its quantitative easing programme if that country's economy continues its gradual recovery.
The baht could depreciate even further but should end the year at the current level as currency stability returns, said Mr Koh.
The baht closed Thursday at 32.25/30 to the US dollar.
Thailand's current account deficit is the result of shrinking exports, said Mr Koh, adding that the country does have sufficient foreign reserves to cope with capital outflows.
UOB expects Thai economic growth to fall within a range of 3.8% to 4% this year, with second-half growth weak on the back of the global slowdown.
Mr Koh said Thailand's growth is projected at between 4% and 4.5% next year, depending on external economic factors, while domestic demand may weaken a little due to regulators' effort to cool off excessive lending.