The dip in consumer purchasing power starts to take a bite out of the non-durable sales of retailers such as convenience stores, supermarkets and hypermarkets.
Household debt limited private consumption in May
Rising household debts and falling agricultural product prices are pinching the purchasing power of lower to middle income consumers, while dying demand has sapped the sales of a wide range of local businesses from retail to property.
"We have seen a plunge in the purchasing power of grassroots people caused by the big slash in crop prices," Chatchai Tuangrattanapan, director of the Thai Retailers Association, said last week.
The association has revised down the growth forecast of modern retail sales from 12 per cent to only 8-10 per cent in line with the bearish signs of a spending slowdown, particularly in the grassroots segment, witnessed since May, he said.
Retailers selling non-durable goods, such as convenience stores, hypermarkets and supermarkets, were hurting the most.
The Thailand Development Research Institute (TDRI) recently revealed that those stores' sales would likely drop by 0.7 per cent this year, he said.
"We ourselves have projected this year's sales by modern retailers selling non-durable goods to increase by only 3-5 per cent," he said.
Just recently 7-Eleven cut its sales target to 5-10 per cent for this year from 15 per cent.
The TDRI estimates department store sales to increase 2.7 per cent this year and 2.7 per cent next year, while the association sees department store sales surging 5-8 per cent.
Kudatara Nagaviroj, director of corporate affairs at Big C Supercenter, said purchasing power this quarter will depend on several factors.
The key domestic factors are the impact of the first-car campaign on spending, consumer confidence index, stock market conditions, effect of the government's rice-pledging scheme and political stability.
Externally, the factors are the fiscal policies and economic situations of major markets such as the US, EU, Japan and China and demand for Thai merchandise from main trading partners.
"It is very important for the government to ensure that the economy is constantly stimulated through public and private investment and domestic consumption," he said.
Loan repayment doubts
Phumipat Sinachoren, chief financial officer of AP (Thailand) Plc, a leading residential developer, said the company's customer rejection rate was still about 15 per cent, nearly the same as last year. Most of them were rejected not because banks raised their minimum credit score but because spending power has dropped due to the growth in debt from durables such as home appliances and cars.
Opas Sripayak, managing director of LPN Development Plc, said up to 10 per cent of its customers who planned to take delivery of their condominiums last quarter had their applications for a mortgage loan rejected by their bank. This is higher than the normal rate of about 5 per cent seen last year and in the first quarter of this year.
"Commercial banks have restricted mortgage loans and restricted investigations of customers when see their income may not be enough to pay back the loan," he said.
LPN has tried to help its customers by negotiating with another bank to support their mortgage loan. If no bank will provide a loan, the company will refund the deposit to its customers, he said.
Piya Prayong, chief business officer for Pruksa Real Estate Plc, said banks rejected about 25 per cent its customers. About 10 per cent of the total applicants were buyers of residences priced under Bt2 million whose credit score did not make the standard after they bought a car under the government's first car scheme.
"We have tried to help our customers by suggesting they find a co-borrower to increase their earnings enough for the bank to approve their home loan," he said.
Banks also have restricted project loans for condominium projects out of concern over a potential bubble.
A source from a condo developer said the company faced the bank's condition that it has to show pre-sales of over 60 per cent of total value before it can get the money to develop the condo project.
The normal threshold is 40-50 per cent, he said.
The top 10 property firms, which never had a pre-sales condition for a project loan, also now have to show pre-sales of 40-50 per cent to get a project loan to construct a condominium.
"I think banks are worried about risk now that the country and global economy look like they're slowing down," the source said.
Last week the Thai Chamber of Commerce reported that average household debt rose 12 per cent from last year to Bt188,744 in the first five months of this year due to the rising cost of living and purchases of fixed assets such as residences and vehicles.
The Bank of Thailand reported recently that private consumption slowed down in May, as manifested by the Private Consumption Index contracting 0.2 per cent year on year.
This reflected the decline in car purchases and value-added tax collections after most vehicles under the first-car scheme had been delivered and households became more cautious about their outlays, the central bank said.
The weakness in exports and consumption, in turn, put a drag on manufacturing production and caused some investment decisions to be delayed.
According to Kasikornbank, total household debt runs to the tune of Bt8 trillion, of which Bt2 trillion is mortgage loans, Bt600 billion auto loans, Bt260 billion credit card loans and Bt260 billion personal loans.
NPLs of credit cards stood at 1.4-1.5 per cent.
Chatchai Payuhanaveechai, executive vice president of KBank, said spending via credit cards in the second half is generally higher than the first half, especially the fourth quarter, which is the spending season.
High household debt may limit spending of people with income below Bt20,000 a month, but they make up 40 per cent of credit card customers. Those with an income of Bt30,000 are major customers of banks. The outlook for credit card spending is positive but household debt may pull down the ticket size, he added.
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