As rich world falters, buoyant Southeast Asia discovers credit.
, city (1990 est. pop.
: Every weekday brings another lucky winner of the
“Credit Card Clean” game on Thailand’s Get Radio station.
Last Thursday it was Chotika Kosaisaevee, nicknamed
“Pear,” a 23-year-old student who admitted she had got carried
away by acquiring three credit cards and racking up debt of about $530.
“I’ve been careless and there’s always temptation in
the first year (of college) when you feel a lot of pressure to wear nice
clothes and keep up with your friends,” she said after winning the
prize — the full pay-off of her card debt.
More credit is coursing through Southeast Asia than at any time
since the region’s 1997 financial crisis, much of it finding its
way to an ebullient new middle class in the form of credit cards, car
loans and mortgages.
That is fueling strong growth that has helped the region of 600
million people defy a stubborn downturn in the US, Europe and even Asian
powerhouse China, making it a firm investor favorite this year with
stock markets in Thailand, the Philippines and Singapore all posting
But the wave of credit — on the back of low interest rates, solid
economic growth and banks’ robust health — is also producing signs
of over-exuberance as traditionally prudent Southeast Asians become more
like American consumers in their willingness to spend now and pay later.
Young Malaysians already in debt from college are buying
smartphones on credit, low-income Indonesians are going into debt to buy
motorbikes and Filipino couples are being helped on to the
with generous mortgages.
“Excessive consumption now might be good, but over the next
few years if this pace continues I think we will enter unsustainable
consumption,” said Aekapol Chongvilaivan, an economics fellow at
the Institute of Southeast
The double-digit annual pace of credit growth in the region has
triggered warning flags for some countries.
An international rating agency for financial institutions, insurance companies, and corporate, sovereign, and municipal debt. Fitch Ratings has headquarters in New York and London and is wholly owned by FIMALAC of Paris.
agency said in July that the Philippines — an
investor darling this year on the back of President Benigno
Aquino’s reform efforts — could be in the first stages of a credit
boom. The Bank for International Settlements warned in June that
Thailand and Indonesia were among emerging markets that have entered a
danger zone of high credit growth.
Some investors worry the region could be on the same path that
ended in credit crises in North Asian economies including
, Mandarin Xianggang, special administrative region of China, formerly a British crown colony (2005 est. pop. 6,899,000), land area 422 sq mi (1,092 sq km), adjacent to Guangdong prov.
Taiwan and South Korea during the last decade when runaway household
spending threatened the stability of banks.
“We have to watch this carefully,” said
executive chairman of Templeton Emerging Markets Group, noting that some
banks had rapidly grown their loan-to-deposit ratios. “The problems
that they have in Europe could come here if they are not careful.”
In regional giant Indonesia, whose broad middle class is expected to
swell to 150 million people by 2014, housing loans vaulted 34 percent in
May from a year earlier. The value of credit card transactions rose 12.3
percent last year, outstripping growth in the national minimum wage of
Indonesia’s BCA bank recorded loan growth of 41.5 percent in
the first half of 2012, driven by house, car and corporate loans. Bank
of the Philippine Islands’ loan portfolio jumped 20 percent in the
first three months of 2012 as it targets another million clients this
year from 5 million now.
The country’s banks have extended fixed-rate loans to as long
as 10 years, bringing home ownership more within reach for middle-class
“We know interest rates will rise, so as much as possible,
while rates are low we grabbed the chance,” said 32-year-old
housewife Eleah Jugno, who with her husband recently secured a 2 million
peso ($47,000) bank loan to build a house.
In a region known for its savers, credit card companies see signs
that young Asians are more willing than their parents to go into debt.
Banks are launching products aimed squarely at the so-called
“Generation Y” born after the 1970s.
brands its new “Mach” service as
“Malaysia’s coolest bank,” with credit cards ready in an
hour and car loans approved in 15 minutes. OCBC’s “Frank”
offers young Singaporeans multicolored cards with striking designs, one
claiming that “Happiness is just a swipe away.” Economists for
the most part welcome the rise of credit-fueled consumption, as easier
access to banking services gives families unprecedented financial
options and helps re-balance the global economy as American consumers
The explosion of credit is coming from a low base in poorer
countries such as the Philippines and Indonesia, one reason why there
seems little risk of systemic problems for now.
Philippine mortgage and car loans are both at historic highs,
rising 40.5 percent and 20.6 percent respectively in March from a year
earlier. But they only account for 6.7 percent and 4.2 percent,
respectively, of total bank loans.
Consumption credit accounts for just 9 percent of Indonesia’s
economy and total credit makes up only 30 percent of gross domestic
product, compared with more than 100 percent in Malaysia, Vietnam and
China. Only about 20 percent of Indonesia’s 240 million people and
30 percent of the 95 million Filipinos have access to formal banking
The harsh lessons from Asia’s 1997 financial crisis have also
made the region’s governments and banks wary of credit bubbles.
Most major banks are well capitalized and have a strong track record of
managing credit risks.
“There’s no reason to doubt banks’ risk
management,” said Anand Pathmakanthan, regional banking analyst at
Nomura. “Banks are not turning into gung-ho animals.”
Indonesia’s central bank moved to dampen the credit fever in March
by limiting housing loans and setting minimum down payments for car
purchases. Its counterpart in Malaysia, where personal debt surged 64
percent in the four years to 2011, has cracked down on speculative
mortgage lending and capped surging credit-card borrowing by low-income
Still, Indonesia’s loan-to-deposit ratio has risen to 84
percent from 80 percent a year ago,
1. As stated or indicated by; on the authority of:
2. In keeping with:
its peak reached before the 2008 financial crisis.
In Malaysia, whose national savings slipped to 40 percent in 2011
from 43 percent four years earlier, some lower-income borrowers may have
got in over their heads although the scale of the problem is unclear.
“We remain concerned about the solvency of lower income
households, as savings rates and wage increases may not able to support
this pace of borrowing,” said Nor Zahidi Alias,
the Malaysian Rating Corporation.
service are from households earning less than about $
1,000 a month, the agency’s chief executive Koid Swee Lian told
Reuters. Even in relatively developed Malaysia, lower-income families
struggle with basic credit management, with many only making minimum
monthly payments, she said.
One of those clients, Francis Xavier, ran up debts of more than
$5,000 with four credit cards but kept receiving offers from banks for
more plastic. He sought help from AKPK after he lost his job and was
unable to meet his monthly payments.
“The credit card companies don’t care,” said the
58-year-old who now works as a taxi driver. “They just give like
mad. You want a credit card and they give it to you.”
Copyright: Arab News 2012 All rights reserved.
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