Business news in brief
Household debt likely to increase
Due to an improving economic recovery that will undoubtedly spur spending, Thailand's household debt is expected to rise next year and possibly for the next few years. Credit card use will be one of the factors behind the expected increase according Kasikorn Research Center (KResearch).
Mr. Chari Kengchon, Managing Director of KResearch says:
- We expect a ratio of 85 per cent of GDP at the end of this year, and it could reach 86-87 per cent next year.
In the second quarter of 2014, household debt rose to 10 trillion baht representing 83.5 per cent of GDP in Thailand. This is compared to 9.87 trillion baht or 82.7 per cent of GDP in the first quarter.
As the economic recovery takes hold it is expected that credit card issuers will expand access to credit for their credit card holders, further increasing household debt.
Still, even at current levels the household debt to GDP ratio in Thailand is lower than that seen in South Korea that already has a 90 per cent ratio and less than Malaysia’s 87 per cent level.
KResearch expects interest rate rises to reduce household debt increases in the medium term of 2015.
- Pressure on households' debt burden will occur when interest rates reach their peak, but that's two or two-and-a-half years from now, so the short-term effect should not be substantial, Mr. Chari says.
Informal lending remains an issue of great concern, and for this to be reduced only an increase in earnings and better financial planning would make a difference.
Prasarn Trairatvorakul, the Bank of Thailand governor says:
- Turning to low-interest loans can be compared with taking a painkiller medicine, which is only a short-term solution, but if we focus on generating earnings, then this would ease excessive lending and improve savings.
BTS Group and Sansiri to develop joint property projects
Bangkok's sky train operator, BTS Group Holdings Plc and SET-listed developer Sansiri Plc (SIRI) has agreed to a joint venture to develop residential projects close to BTS train lines. The plan is for the developments to be large scale, valued at more than three billion baht each and for them to be located within 500 meters of a mass transit route.
The joint venture is the fist foray into the real estate business for BTS Group Holdings Plc in over twenty years, since it has been focusing on the mass transit system during that time.
Keeree Kanjanapas, BTS chairman, says:
- We have many plots of land along mass-transit lines that are aviable for property development, but we're not ready to do it alone. Sansiri can help us.
In total, the alliance is expected to build projects worth up to 30 billion baht in the next few years. The joint venture company will be held equally by both companies and will have an initial capital of 100 million baht.
Initial investment for the first project, which will be located at Mor Chit BTS station will be in the order of 600 million baht for each of the holding companies. The plot of land at Mor Chit station is five rai in size and it's located close to Chatuchak Park.
The project, once complete, is expected to consist of 900 units worth 5.5 billion baht in total. Approval for the development in respect of an environmental impact study has already been secured.
South Korea steel maker Posco to build new factory in Rayong
The Thai division of South Korea's Posco, Posco Coated Steel (Thailand), is to build a new factory in Rayong.
The factory will produce sheet galvanized steel and galva-annealed steel products for the growing automotive industry in Thailand. The new plant will have a capacity of 450,000 tonnes and will cost US$300 million to build. Completion is expected to be in the middle of 2016.
The plant is to be a continuous galvanizing line plant and will be built in the Amata City Industrial Estate, close to manufacturing plants of many carmakers in the region.
Most of the carmakers that Posco will serve from the new factory are already customers of the company. Thailand's automotive industry is growing steadily with 2.5 million cars produced last year.
The additional output of Posco's new Thai plant will push the company’s global production up to 2.2 million tonnes. The company has existing factories in China, Mexico and India.