Below is an important message regarding changes in the credit system planned for next year. Given that many readers, married ones, have to deal with this, placement is certainly appropriate.
The very last paragraphs contain some information about the informal lending sector such as loan sharks. It is very difficult to get correct information about this. In the mid-eighties I had a student who did a thesis on the informal lending sector. In addition, I am aware that you can also lend money yourself and indeed receive 10% interest from Chinese people who need capital, for example to plant cassava in the region around Pattaya. Whether you can ever recover your capital is another question… Loan sharks in Thailand are swimming around armed!
Submitted by Walter EJ Tips
Summary of the article in the Thai Examiner
Many middle-class Thais are trapped in a never-ending cycle of debt. This means that they have to use almost all of their income to pay off debts and hardly any money is left to live on. This situation has hampered Thailand's economic growth for ten years. The Bank of Thailand recently announced a plan to solve this problem. They want to tackle the problem of high household debt, which now almost equals the country's entire annual income.
The deputy governor of the Bank of Thailand, Ronadol Numnonda, has explained this plan. In particular, he wants to address the debts that people have because they borrow money without collateral, such as credit card debt and personal loans that go on and on.
One of the biggest concerns is that 7,8 trillion Thai baht in unsecured loans are outstanding with banks and other lenders in Thailand. Many of these loans go on and on with millions of people borrowing money. They are often people with a permanent job who cannot pay back the borrowed money and are therefore stuck in the debt cycle.
From April 1, 2024, the Bank of Thailand wants to introduce stricter rules for lending. These new rules should apply to all financial institutions and ensure that they do better for their customers. The goal of this change is to reduce the number of people trapped in a debt cycle over five to ten years.
Another part of this new plan, which will start in the second quarter of 2024, is that financial institutions will be allowed to adjust interest rates according to the risk they run when lending money. This means that people who have had money problems before will probably have to pay a higher interest rate. In addition, the bank wants to keep a closer eye on how many people borrow.
The outstanding household debt is 7,8 trillion not trillion.
No dear Walter, the outstanding debt is 16 Trillion baht of which 7,8 Trillion is not secured by any collateral, translated this is 7,8 trillion and since I and most think a billion is already a lot: the latter is 7800 billion baht and that is 200 billion euros. Total debt is then 400 billion euros outstanding with banks and financial institutions. Simple calculation shows that with 10 million middle-class Thais, they have 20.000 per person outstanding in unsecured loans and 20.000 in home and car loans with the car as collateral; comparable that the working people in the Netherlands have a debt of 100.000 euros at an interest rate of 25% per year, or interest alone 2000 euros plus another interest for, among other things, mortgage debt of 2000, a total of 4000 euros per month. And yes, we are not talking about the other debts with third parties.
There is actually only 1 solution: no money then no car or then just a small car. Just have to look at the Japanese market where people have a lot of money and put the consumption to the trade and go for a small car where you see a lot of it because affordable. Or look at Singapore where people don't take a car. It is Thai madness to use all income to borrow money. The collapse of the baht due to unbridled debt growth in 1997, also known as the Thai disease, will continue in the long term. There is only 1 plus and that is the baht weakening in the long term, the economy has been dangling at the bottom in Asia for 20 years and the population is aging strongly and that means that we get even more Thai money for our Euro.
In this article you can read what the income of the Thai State is:
https://www.thaipbsworld.com/thai-state-revenues-total-1-95-trillion-in-the-first-9-months-of-this-fiscal-year/
Seems like a good start though. I foresee that it will be a stillborn baby.
This is not going to work, now think of something with good rules and enforcement.
Make people who have had money problems pay more interest, or make it even more difficult for people who are in trouble. That means either drowning sooner or reverting to informal loans (read: banned loansharks, among other things). Sit down and think about this plan. The fewer debts the better, of course, but that will also require improvement of socio-economic conditions, social services, etc.
A Thailandblog reader's entry earlier this month mentioned the Bank of Thailand's "concerns" regarding financial problems for Thai households. The Bank believed on the one hand that things were going well with the Thai economy, on the other hand that households are stuck in a hopeless vicious circle of debts, at least that was the title of the entry.https://ap.lc/k936O
But the problem of the ever-increasing mountain of debt of middle-class families is as old as methuselah. Thailandblog has paid attention to it in recent years. Type the word 'debts' in the search field at the top left, and articles far into the past will be retrieved. All kinds of financial institutions make money like water from the interest payments on loans and credit cards. It is even part of the Thai economy. The repayments are minimal, so it takes years before a loan is paid off. What households do is redeem one loan with another higher loan in order to make new purchases with the remaining part. It then becomes an accumulation of mortgage, car financing, hire purchase, consumer credit and credit cards. Credit cards are promoted with every larger purchase. And then there are the loansharks, who legitimately profit from the misery in which a family/individual finds itself. One half of the Thai population has money outstanding with the other half. It takes years and years to make families aware of their own unbridled purchasing behavior and banks to act responsibly. The BoT wants to come up with measures from 2024.
In my Thai family I have experienced that no one is able to properly estimate the cost of a loan. Everyone is convinced that 6% annual is little. “kwhei loft pescent tight”. It's only 6 percent."
When I then show the amortization table over 5 years in absolute figures, they look at the final sum with surprise or even disbelief.
Incidentally, nobody knew the difference between borrowing for a sustainable investment and for the purchase of non-durable consumer goods.
Teaching the population a little better at school would help the social problem of debt overload more than the plans of the Central Bank. The banks also oblige to provide transparent information about the cost of borrowing in absolute figures. Coincidentally, the CB did not think of that 🙂
How could it be that a country like Thailand has so much poverty, yet has a huge middle class, and nevertheless a huge mountain of debt. How could it be that in a country such as Belgium that calls itself modern civilized, people assemble every week against government policy and demonstrate that they cannot pay their bills, have debts and need debt assistance to repay them? Can't these people count? Do they have an eye on the total 'cost' of a loan? Are the banks there transparent? https://www.eerstehulpbijschulden.be/schulden-wat-nu/schulden-wat-nu/welke-schulden-en-hoeveel
In Belgium, household debts only started to fall after 2015, but in 2022 they will be at the same level as in 2007. See: https://ap.lc/fQp4m
But we are talking about Thailand, and it should be known to everyone that people in Thailand are actively encouraged to buy even more and withhold information from above at all levels. The older generation received minimal education in their childhood and youth, which was also of questionable quality, and aimed at least not thinking independently and solving problems. The younger generation is given an absolutely wrong example and is taught that having debts and dealing with them opportunistically is normal.
A major side problem is the legally permitted system of taking out private loans, provided that these are made on contract and provided that the loan percentage does not exceed 15. That is why 6% is not too bad. Loan sharks capitalize on this and their practices become illegal by setting off over 15%, verbal settlement, and violent collection.
In short: more nuance and less cynicism and therefore greater insight into Thai contexts.
Beats. When I sometimes say that someone should go to work with a moped for a few years and only buy a (2nd hand) car when he has saved some money, my wife always says that everyone does it that way. Well, everyone does it, and what should you do as an economically educated and sensibly frugal Dutchman? Then you're done talking.
Dear Soi,
You write: “A major side problem is the legally permitted system of taking out private loans, provided they are made on a contract and provided the loan percentage does not exceed 15. That is why 6% is not too bad.” It is completely correct what you write. But then we are talking about an annual percentage rate of charge.
There are two loan sharks in my village. Neither is concerned with annual interest. The 10 (rarely), 15 or even 20% they charge must be coughed up MONTHLY. And it is precisely that word that I miss in your argument where you talk about that category of 'lenders'. And as far as verbal handling and sometimes violent collection is concerned, I can agree with you.
I referred to the legally permitted private system between bona fide individuals on a contract basis of up to 15% annually. Do you want to talk about the 'illegal' system? A cousin of my wife lends large amounts at 1% per day (repeat: 1% per day) with a repayment term of 30 days. As collateral he takes a chanut, jewellery, gold, car, moped, etc. Violent collection is not unknown to him.
But there are plenty who delight in investing small amounts at high rates over short periods to generate additional income. Those people have no shame, no empathy, no morality. The other person's problem does not bother them. Thai in general and not intended to generalize does not think about the consequences of his own behavior for others. They even go to the temple to wave incense sticks with the request to higher spiritual powers for the highest possible profit.
Another example: an acquaintance of my wife asked us to borrow money to buy a second-hand car. You have money yourself, was our answer. No, she said. She already had her own money outstanding here and there as a small loanshark and wanted to pay us back from the return to be achieved. There are those who are not devoid of a shortage of brain twists.
Teaching young people how to deal with money at a young age will not work either, because it is precisely the parents who have money problems. Teaching the young people at school not to go into debt will not work either, because many young people want the latest smartphone and a motorcycle to tour around. The teachers are precisely the middle class that has the most problematic debts. Those teachers and many other government officials often live far beyond their means because that target group in particular can borrow almost unlimited money from the lenders.
I was also recently surprised by my wife.
Bought a Toyota pickup in 2020 on installment.
Last month I ask my wife he is almost paid off, isn't he?
Does she say no I have taken out a new loan with a car as collateral…. I do not understand how this is possible without informing the paying party, i.e. me, about this…..
This is possible if the car is registered in your wife's name. Then she is the owner and her name is in the green book. As the owner, she has ownership and business rights to the car, including pledging ...
Then the car must already be paid off. If that car has not yet been paid off, she does not have that book and it is with the bank. Normally she can't pawn it.
This is not true Ronny, my car is registered in the name of a Thai relative and I have already taken out an extra loan of 2 baht twice.
No problem.
Refinancing at the same bank then, but you will only receive the booklet once the car loan has been paid off. Not before. No bank does.
Once paid off and you have that booklet, you can use the car as collateral, of course, for a loan anywhere.
And since the car must first be paid off before you receive that booklet, you cannot speak of “my” car. You can only say that when that car loan has been paid off and you have the booklet.
By the way, it is not “your” car anyway if it is registered in the name of a family member.
I think the booklet is blue for a car by the way. Ours anyway….
Dear Josh,
Actually, it is the same story as a Falang entrepreneur who pays 100 percent of the establishment, but has a maximum of 49 percent participation (hahahaha) …
Your story would not have come so easily to a Thai husband. More important is why your wife borrows money so easily and hides it from you.
Or she asked you first, you refused and she borrowed?
Best regards,
Also ask your wife what she has done with the money, your money.
You should definitely ask your own wife that last question. If you are the paying party and you assume that the pickup you bought in 2020 is now almost paid off, then you are paying the monthly installments, right? How is it possible that she does not consult with you to take out a new loan? Why should the bank inform you? The bank assumes that you know from each other how and what money is handled in your household. Do you know what your wife will spend her capital on, and have you agreed to the new monthly installments and the longer term of payment?
If this is considered normal in your home, I have some good advice.
Goodbye… This one has probably already cost you way too much.
I know someone here, also a Dutchman, who has had to buy back his car several times.
After he also lost his house and land.
Don't wait until it's too late...there are a million more available.
Welcome to the club I would say. I also experienced this. I assume the car loan is in your wife's name. Then she can do anything. Afterwards I had received signals but did not respond. The bank regularly sends good paying customers new options that can then be used. Phone calls that also help to persuade the customer. The temptation for some is then fueled and the results come later. Lots of extra interest, longer pay, etc.
Just a small addition. The interest in the informal circuit is not 6% or 10% per year, these percentages are calculated PER MONTH. And indeed, the average Thai has little math skills and does not understand that with this high interest rate there is no money left over for the repayment.