As rich world falters, buoyant SE Asia discovers credit
KUALA LUMPUR - 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.
|A girl rides in a shopping cart as her mother shops at a mall in Mandaluyong City, Metro Manila July 4, 2012. / REUTERS
That is fuelling strong growth that has helped the region of 600 million people defy a stubborn downturn in the United States, Europe and even Asian powerhouse China, making it a firm investor favourite this year with stock markets in Thailand, the Philippines and Singapore all posting double-digit gains.
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 property ladder 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 Asian Studies.
The double-digit annual pace of credit growth in the region has triggered warning flags for some countries.
Fitch ratings 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 Hong Kong, Taiwan and South Korea during the last decade when runaway household spending threatened the stability of banks.
"We have to watch this carefully," said Mark Mobius, 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."
HAPPINESS "A SWIPE AWAY"
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 8.8 percent.
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' <BBI.PS> 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 Filipinos.
"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.
Hong Leong Bank 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 multicoloured cards with striking designs, one claiming that "Happiness is just a swipe away".
HEALTHY - FOR NOW
Economists for the most part welcome the rise of credit-fuelled consumption, as easier access to banking services gives families unprecedented financial options and helps re-balance the global economy as American consumers retreat.
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 services.
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 capitalised 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 households.
Still, Indonesia's loan-to-deposit ratio has risen to 84 percent from 80 percent a year ago, according to ANZ Research, topping 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, chief economist at the Malaysian Rating Corporation.
About 70 percent of people seeking help at Malaysia's AKPK credit counselling 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."