Asia’s debt binge

We’ve heard a great deal about the Chinese credit bubble in recent years. But the rest of emerging Asia has also been on a “debt binge”, says Alex Frangos in The Wall Street Journal. It’s a result of the global slide in interest rates following the financial crisis, which made debt unusually cheap, and the flood of money pouring into emerging assets as Western central banks printed money.

One way of gauging the increase in leverage is the ratio of bank credit to GDP in an economy, which tracks lending to households and companies. In the region as a whole this ratio had reached 104% by last year, up from 82% in December 2007. In Hong Kong, it jumped from 183% to 275% in the same period. In Singapore, Thailand and Malaysia, the ratio jumped by 51%, 32% and 25% respectively.

Consumers in particular have been loading up on credit. Loans to buy cars and motorcycles doubled in Asia (excluding Japan) between 2007 and 2012. Non-mortgage consumer credit has expanded by 67% to $1.7trn in the past five years. In Thailand, household debt grew by 88% in the five years to 2012. Households there are grappling with debt payments worth 34% of their income, double the US figure before the 2008 crisis. On the corporate side, borrowing by India’s ten most indebted companies has risen sixfold in six years, says Morgan Stanley Investment Management’s Ruchir Sharma in the Financial Times.

The upshot? As capital leaves emerging Asia and global interest rates head upwards due to the gradual tightening of US monetary policy, consumer and corporate debt loads mean that Asia’s domestic economies may prove less resilient to global headwinds than investors suppose.

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