Imbalances feared as credit rises

Thailand's sharp loan growth has worried Standard & Poor's Ratings Services, as the country's private-sector leverage is already high compared with normally low-income levels.

"We did not view such rapid credit growth as a risk until now because of several years of muted growth prior to 2010," S&P said in a report on "Thailand Banking Outlook 2013: Rapid Growth Could Create Imbalances" released yesterday.

The accelerating credit growth could further increase this leverage. This could heighten economic risk for banks operating in Thailand.

"A steep rise in real-estate prices could also lead to a build-up in economic imbalances, in our opinion. The increase in real-estate prices in Thailand has been low, except in a few pockets.

"However, the prices of condominium apartments have increased sharply, particularly in Bangkok. Economic imbalances could heighten if the prices of condominium apartments continue to rise aggressively and the loans to this sector become sizeable," the rating agency said.

Household debt has been ballooning fast for years, according to news reports. In the past few years, loan growth has been outpacing the increases in nominal gross domestic product. S&P expects the banking industry to grow 10-12 per cent this year, compared with 13.7 per cent in 2012 and 15 per cent in 2011.

From 1998-2001, according to a National Statistical Office survey, household debt averaged Bt69,500. But by 2011, according to a survey by the University of the Thai Chamber of Commerce, average household debt had shot up to Bt168,517 - more than doubling in 10 years.

Last year, according to the National Economic and Social Development Board, household debt surged 21.6 per cent to Bt2.9 trillion, while automobile loans soared 39 per cent and mortgages for condominium purchases rose 24.4 per cent. This rang alarms even at the Bank of Thailand.

S&P said domestic consumption and the government's investment incentives would likely push demand for loans. The recent increase in the minimum wage will underpin domestic consumption, and government spending on various infrastructure development projects should support private investments |in related industries, such as construction.

The improvement in political stability since the July 2011 parliamentary election could also aid growth in loan disbursals. But political tensions continue to simmer below the surface, the agency noted.

Several issues could lead to renewed public confrontation between the two major political factions in Thailand. Among these, the government's drive to amend the constitution appears to be the most contentious. However, the report said, the proposed constitutional amendments could improve predictability in the political arena by defining the role of the judiciary more clearly.

"This risk [of economic imbalances] exists especially for Thailand for the next 12 months, if banking-system growth continues to significantly outpace the rise in the country's nominal GDP," S&P said.