Has hope for Thailand's economy come too late for crippling debt crisis?

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Extracted from South China Morning Post

The bell at Siam Inter Auto (SIA) rings frantically, marking more than US$1 million in sales of second-hand cars – most sent to auction by banks clawing back what they can from Thais unable to make their repayments in an economy

floored by Covid-19

.

From condominiums and cars, credit cards to mobile phones, bad debt is rushing through

Thailand and experts fear worse is to come for Southeast Asia’s second largest economy after the government ended a repayment holiday for struggling individuals and small businesses.

Some of the consequences of this unprecedented economic collapse are parked in rows in the vast lot of SIA’s suburban Bangkok warehouse, where potential buyers do a high-speed triage of repossessed cars as fast-talking auctioneers whip up bidding wars from two podiums.

SIA has its finger on the pulse of the Thai economy, according to Gai Nanthana, its genial executive vice-president, and the prognosis isn’t good.

“We feel the economy. When things are good, our business is good as people sell their old cars and upgrade,” said the 57-year-old. “When the economy is bad – we do better. It’s very sad but bad debt forces people to sell … or downgrade, especially the middle class. Right now they are facing punishment. They can’t make their payments.”

Official data released on Monday showed that Thailand’s economy shrank 6.4 per cent year-on-year in the third quarter, an improvement from the previous quarter’s contraction of 12.1 per cent

at the peak of the Covid-19 outbreak. The better-than-expected came as global lockdowns eased and the government’s 1.9 trillion baht (US$62.9 billion) stimulus package began to feed into the economy, according to the National Economic and Social Development Council (NESDC).

“These GDP statistics don’t really mean anything to the real economy,” said Virot Ali, international political economy lecturer at Thammasat University in Bangkok, “as they represent only those able to join government schemes and not the poor. If you look at the household debt, credit card debt, personal loans and all defaulted loans, they’ve risen to a record high.”

Household debt hit nearly 84 per cent of GDP in the second quarter, according to the Bank of Thailand. Against this backdrop, banks and smaller lenders are still in a rush to repossess, while their fear of defaults on repayments have led to nearly half of all mortgage applications being rejected amid the pandemic, according to the central bank.

That has left up to US$30 billion of unsold properties across Bangkok alone, according to Thailand’s Real Estate Information Centre.

xacerbating the situation is the Bank of Thailand’s decision late last month to end its blanket debt holiday for “the stability of the financial institution system” after 1 million small businesses deferred payments on around US$44 billion worth of loans – which experts say is likely to wipe out many small businesses that have staggered through to this point.

“Given the end of the debt moratorium, [small and medium-sized enterprises] – particularly in sectors that face an abrupt disruption, like tourism – are unlikely to have the financial resources to sustain their operations,” said Pavida Pananond, associate professor of International Business at Thammasat Business School.

Thailand is also a split-screen economy, with the gap between rich and poor among the widest in Asia. That is set to get a lot worse, experts say, as major conglomerates – and the business clans who own them – scoop up distressed assets while small businesses are decimated.