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1 The Credit Card Report May 4

2 The Credit Card Report May 4 Contents Visa makes no representations or warranties about the accuracy or suitability of the information or advice provided. You use the information at your own risk. To the extent permitted by law, Visa excludes all liability (including negligence) for any loss or damage (including special, indirect or consequential loss or damage) arising from or in connection with any use of the information provided by Visa. Highlights 2 1 Introduction 4 2 Credit card take-up in Thailand Number of cards Number of accounts Number of merchants accepting Visa credit cards 8 3 Credit card use in Thailand Number of credit card transactions Average number of credit card transactions per account 9 4 Credit card spend in Thailand 4.1 Total spend on credit cards 4.2 Average spend per account Average spend per card Average spend per transaction Credit card spend relative to GDP Credit card spend relative to household expenditure 13 5 Credit card repayments in Thailand Visa credit card repayments 14 6Credit card debt in Thailand Total balance outstanding Average balance per card Credit card balances relative to spend Credit card debt relative to limits Balances attracting interest 6.6 Transactors and Revolvers Credit card debt relative to total household debt Affordability of credit card debt Delinquency rate Default rate Credit card net credit losses Credit card balances relative to household income Credit card balances relative to GDP 7 Visa debit cards 26 8 The way forward 27 Glossary of key terms 29 Charts and Tables 31

3 Highlights There has been strong growth in credit card take-up in Thailand, although this growth has been from a relatively low base. According to the latest available data, on average one in every 4.4 Thai households has a credit card. Of all credit cards issued in Thailand, 81 percent carry the Visa brand. This increased penetration has in turn led to strong growth in the total number of credit card transactions, aggregate credit card spending and outstanding balances. In the year to Q4 3, the number of Visa transactions grew by 19 percent to 26.8 million; national credit card spend increased by 27 percent to Bht 68.6 billion; and outstanding balances on credit cards increased by 33 percent to Bht 76.2 billion. Available indicators of credit card affordability suggest that the majority of Thai credit cardholders are able to manage their credit card debt very well. For instance: as at the end of Q4 3, credit card debt in Thailand accounted for 3.7 percent of total household debt; in the year to Q4 3, the average household saving ratio increased to.2 percent, up from 19.2 percent a year earlier. Notwithstanding the expansion of credit cards, household spending has been growing less rapidly than income; and delinquency rates have come down from 37 percent of rolled over balances in Q to just over 4 percent in Q4 3. Default rates have come down from 36 percent of balances in Q to just under 3 percent in Q4 3. In the presence of strong growth in credit card take-up, the aggregate results have masked developments at the individual cardholder level. For example, Visa data on a per account basis for the three months of Q4 3 show that the average credit cardholder in Thailand: made an average of 8.3 card transactions; spent Bht 18,65 on goods and services. After adjusting for inflation, this was Bht 117 more than spent in Q4 2, but Bht 1,227 less than spent in Q4 1; repaid Bht 17,377, which is around 8 percent more than repayments made a year earlier; and was left with an outstanding balance of Bht 19,39. After adjusting for inflation, this was Bht 1,535 more than average balances in Q4 2, but Bht 1,312 less than in Q4 1. 2

4 1 Introduction Recently the Thai credit card market has been experiencing rapid growth. In the year to Q4 3, the number of cards issued grew by 23 percent to 4.2 million and total credit card spending increased by 27 percent to Bht 68.6 billion. 1 This growth has prompted concern among policy-makers about the potential for a credit bubble, a situation where consumers take on unsustainably high levels of debt that they cannot repay. In November 2, the Thai government re-imposed a Bht, minimum income requirement for credit cardholders and imposed an interest rate cap of 18 percent on credit cards in a bid to protect consumers from growing debt. Visa International (Visa) accounted for 81 percent of the Thai credit card market as at the end of Q4 3 2 and takes community concern about the sustainability of credit card debt very seriously. However, Visa is concerned that reactions to growth in credit card take-up and spending have not been based on full information. This report, prepared by Network Economics Consulting Group (NECG), has been commissioned by Visa to build knowledge of the Thai credit card market within public policy circles and the wider community. It draws on data published by the Bank of Thailand, the National Statistical Office of Thailand and the International Monetary Fund (IMF), as well as Visa data. The Visa data is based on reports provided by its Thai member financial institutions on a quarterly basis according to a set format. The report is presented in six sections. Sections 2 and 3 investigate recent trends in credit card take-up and use in Thailand. Section 4 examines credit card spend, while Section 5 explores credit card repayment behavior in Thailand. Section 6 examines trends in credit card debt and debt affordability. Section 7 describes recent movements in Visa s debit card product with a view to providing an understanding of trends in electronic payment instruments while the final section outlines the way forward. 1 Bank of Thailand data. 2 In terms of cards issued. 4

5 2 Credit card take-up in Thailand This section describes recent trends in credit card issuing in Thailand. It draws on Visa and Bank of Thailand data concerning the number of credit cards in circulation and the number of credit card accounts. Key points Visa and Bank of Thailand data reveal a consistent story about credit card take-up in Thailand. There has been strong growth in credit card penetration over the last two years off a relatively low base. There were 4.2 million credit cards in Thailand at the end of 3 equivalent to 1 for every 4.4 Thai households. According to Bank of Thailand data, the number of credit cards in Thailand increased by 23 percent in the year to Q percent of credit cards in circulation in Thailand as at the end of Q4 3 were Visa credit cards. At the end of 3, 3,829 merchants accepted Visa cards in Thailand. 2.1 Number of cards There has been strong growth in the number of credit cards in circulation in Thailand over the last two years, however this growth is occurring off a relatively low base (see Chart 1). In the year to Q4 3, the latest period for which Bank of Thailand data is available, the number of credit cards in Thailand increased by 23 percent to 4.2 million. 3 During Q4 3, on average one in every 4.4 Thai households had a credit card compared with one in every 6.9 Thai households two years ago percent of credit cards in Thailand were Visa credit cards as at the end of Q4 3. That is, 3.43 million of the 4.22 million credit cards in circulation in Thailand during Q4 3 carried the Visa brand. Given Visa s sizeable market share, it is not surprising that Visa card take-up data reveals a very similar trend to Bank of Thailand data (see Chart 2). The number of Visa credit cards in circulation increased by 24 percent in the year to Q4 3 to 3.43 million cards. 3 Bank of Thailand data. 4 Number of households data provided by National Statistical Office of Thailand (Q4 3). 6

6 Credit card take-up in Thailand Credit card take-up in Thailand Millions Millions Chart 1 Number of credit cards in Thailand Strong upward trend in the number of credit cards Data source: Bank of Thailand 4. Chart 2 Number of Visa credit cards in Thailand The number of Visa credit cards also trends higher Data source: Visa International Number of accounts Households typically manage their credit card spend and debt on an account rather than on a card basis. A credit card account is set up in order to record the value and date of credit card transactions, details about the merchant who has accepted the credit card transaction, the value of the outstanding balance, and any financial charges imposed on holders of the account. Where there is more than one card issued per account, cardholders typically coordinate and make joint decisions about their level of spending, repayment and revolving debt. Thus, an increase in the number of cards issued to existing accounts usually has no impact on the level of credit these households can access. Visa collects information about the number of Visa credit card accounts as well as the number of cards in circulation. On average during Q4 3 there were 1.6 Visa credit cards in circulation per account. The number of Visa credit card accounts increased by 23 percent to 3.22 million in the year to Q4 3 (see Chart 3). Growth in the number of Visa accounts is very similar to growth in the number of Visa cards issued over this period. 2.3 Number of merchants accepting Visa credit cards Generally, growth in the number of credit card accounts and cards in circulation is positively correlated with growth in the number of opportunities to use a credit card. As at Q4 3, 3,829 merchants in Thailand accepted Visa credit cards (see Chart 4). In the year to Q4 3, the number of merchants accepting Visa credit cards increased by 7 percent. Millions Thousands Chart 3 Number of Visa credit card accounts in Thailand Number of Visa accounts is stable then trends up Data source: Visa International 4. Chart 4 Number of merchants accepting Visa credit cards in Thailand Number of Visa merchants steadily on the increase Data source: Visa International 4. The Bank of Thailand does not publish account level data, so it is not possible to verify whether the trend in Visa account growth is also observable in the wider credit card market. 7 8

7 Total Transactions - Millions 3 Credit card use in Thailand This section profiles frequency of credit card use in Thailand in terms of the number of credit card transactions. It draws on Visa data only, as the Bank of Thailand does not report national transactions data Key points Visa data shows there has been strong growth in the number of credit card transactions in Thailand. This growth is due to increased credit card penetration rather than an increase in the number of transactions per account. Indeed, the average number of transactions per Visa account declined in the year to Q4 3. The average credit card account holder made eight transactions per quarter in Q4 3. Visa credit card transactions increased by 18.6 percent during the year to Q4 4 to 26.8 million. 3.1 Number of credit card transactions The Bank of Thailand does not report transaction data, however Visa data reveals there has been strong growth in the number of credit card transactions in Thailand. Chart 5 Visa credit card transactions per quarter Number of transactions per account edges down Total Transactions Transactions per account per quarter Data source: Visa International Transactions per account per quarter Visa credit card transactions increased by 18.6 percent during the year to Q4 4 to 26.8 million (see Chart 5). 3.2 Average number of credit card transactions per account Visa data highlights that recent growth in the number of credit card transactions in Thailand has been due to increased takeup of credit cards rather than an increase in the average number of transactions on individual accounts. In fact, the average number of transactions per Visa account fell by 3.4 percent in the year to Q4 3 (see Chart 5). The average Visa credit card account had 8.3 transactions during the three months of Q Credit card spend in Thailand The section profiles credit card spending in Thailand drawing on Bank of Thailand and Visa data. All time series comparisons of spend make adjustment for the impact of inflation over the relevant period. Key points Recent growth in credit card spend in Thailand is driven by increased card penetration, not increased spending by existing cardholders. During Q4 3 cardholders collectively spent Bht 68.6 billion on their credit cards (see Chart 6). 5 During Q4 3, 87 percent of credit card spend in Thailand was on a Visa credit card. According to Bank of Thailand data, average spend per card was Bht 16,245 in Q4 3. In inflation-adjusted terms, this figure is 1.5 percent higher than Q4 2, but 9 percent lower than Q4. Visa data reveals that total credit card spend has been increasing while spending per account has declined in inflation-adjusted terms. Bank of Thailand data suggests that spending per card has been stable in inflation-adjusted terms. According to Bank of Thailand data, average spend per credit card was Bht 16,245 during Q4 3. According to Visa data, the average spend per transaction during Q4 3 was Bht 2,232. National credit card spend in Thailand has steadily increased relative to gross domestic product (GDP) (see Chart 11). In Q3, national credit card spend was equivalent to around 1.6 percent of GDP for the quarter. Three years later it was equivalent to around 4 percent of GDP. Credit card spend as a proportion of total household expenditure has been slowly trending upward but remains less than percent. 4.1 Total spend on credit cards During Q4 3 cardholders collectively spent Bht 68.6 billion on their credit cards (see Chart 6). 6 This was.2 percent higher than that in Q4 2 and 61.1 percent higher than that in Q4 1 after adjusting for the impact of inflation. 5 Bank of Thailand data. 6 Bank of Thailand data. Visa also recorded.6 percent growth in Visa credit card spend in the year to Q4 3 (see Chart 7). In Q4 3, Visa credit card spend was Bht 59.9 billion or 87 percent of national credit card spend. 9

8 Credit card spend in Thailand Credit card spend in Thailand Baht (Thousands, Inflation adjusted) Baht (Billions, Inflation adjusted) Baht (Billions, Inflation adjusted) Chart 6 National credit card spend in Thailand Credit card spend has increased strongly since Data source: Bank of Thailand 4. Chart 7 Visa credit card spend in Thailand The growth in Visa credit card spend has paralleled the total figures Data source: Visa International 4. Chart 8 Average spend per quarter on Visa credit card accounts in Thailand Visa spend per account rising then falling 5 Data source: Visa International Average spend per account Average spend per account reveals the extent to which growth in credit card spend is due to increased spending by existing cardholders and/or by new cardholders. Since the Bank of Thailand does not report account data, it is not possible to investigate at a national level how average spend per account has changed. Visa data reveals that the average spend per credit card account has steadily declined since Q4 (see Chart 8), although in very recent times there are signs of a small turnaround. In the year to Q4 3, the average nominal spend per Visa credit card account increased by 2.3 percent to Bht 18,65 per quarter. This increase is equivalent to.6 percent after allowing for the impact of inflation during that period. 4.3 Average spend per card Data for average spend per card presents a similar picture to the per account figures. According to Bank of Thailand data, average spend per card was Bht 16,245 in Q4 3 (see Chart 9). In inflationadjusted terms, this figure is 1.5 percent higher than Q4 2, but 9 percent lower than Q4. Visa data on the average spend per card is consistent with Bank of Thailand data (see Chart ). Average spend per Visa credit card peaked in Q4 and has since declined over almost every quarter. During Q4 3 Visa credit cardholders spent Bht 17,484 per card, up from Bht 17,226 during Q3. In inflation-adjusted terms, the average spend per Visa card decreased by.1 percent over the year to Q Average spend per transaction The Bank of Thailand does not publish transaction data, so it is not possible to examine national average credit card spend per transaction. However, according to Visa data, the average spend per transaction during Q4 3 was Bht 2,232, which was up from Bht 2,138 in the previous quarter. During the year to Q4 3, average spend per transaction on Visa credit cards increased by 4.2 percent in inflation-adjusted terms. During the year to Q4 2 it increased by 2. percent. 4.5 Credit card spend relative to GDP Credit card spend has also increased more rapidly than the growth in GDP. This reflects an increase in the penetration of credit cards a greater share of spending is being conducted using cards than in the past rather than indicating that growth in consumer spending has outpaced that of GDP. National credit card spend in Thailand has steadily increased relative to GDP (see Chart 11). Baht (Thousands, Inflation adjusted) Baht (Thousands, Inflation adjusted) Chart 9 Average spend per credit card per quarter in Thailand Spend per card have trended slowly downwards 5 Data source: Bank of Thailand 4. Chart Average spend per Visa credit card per quarter in Thailand Visa spend per card also have edged lower until recently 5 Data source: Visa International 4. In Q3, national credit card spend was equivalent to around 1.6 percent of GDP for the quarter. Three years later it was equivalent to around 4 percent of GDP. The use of credit cards in Thailand is still much less than that in other countries in the region. By way of comparison, credit card spend as a percentage of GDP in 3 was on average 19 percent in Australia, 9 percent in Hong Kong, 8 percent in Malaysia, 8 percent in Singapore and 12 percent in Taiwan

9 Credit card spend in Thailand Chart 11 National credit card spend as a proportion of Thai GDP per quarter Spend as a percent of GDP rising since 5% 4% 3% 2% 1% % Data source: Bank of Thailand 4 and IMF 3. Chart 12 National credit card spend as a share of household expenditure Credit cards account for a steadily increasing share of household spending 12% % 8% 6% 4% 2% % Data source: Bank of Thailand 4 and National Statistical Office Thailand 4 Chart 13 Household saving rate in Thailand Thai households increase their savings over past year % % % % 5% % Data source: National Statistical Office of Thailand Credit card spend relative to household expenditure Similarly, credit card spend relative to household expenditure is an indicator of the preferences that households have for using a credit card to pay for goods and services as opposed to other payment methods, such as charge cards and cash. If credit card spend is growing faster than household expenditure, this means that households increasingly prefer to pay for goods and services using a credit card rather than using other payment methods. Credit card spending as a share of household expenditure has increased in recent years (see Chart 12). In Q4 national credit card spend accounted for around 6 percent of household expenditure for the quarter. In Q4 3 it accounted for almost percent of household expenditure. To highlight the fact that the greater use of credit cards is not a reflection that households, in aggregate, are spending excessively, Chart 13 shows that the household saving rate or the proportion of household disposal income not used for consumer spending has risen in recent times. 5 Credit card repayments in Thailand This section examines trends in credit card repayments. It draws on Visa data only, as the Bank of Thailand does not publish national credit card repayment data. Key points During 3, repayments represented an average of 95.3 percent of the total spend or for every Bht 1, baht spent, Thai cardholders repaid Bht 953. Thai credit cardholders have increased their repayments at a similar rate to their increased spending. This is a strong indicator that cardholders are spending based on their ability to repay and are paying off their credit card liabilities at a similar pace as they are accumulating them. The rate of repayment is similar to that in other countries in the region. 5.1 Visa credit card repayments Patterns of credit card repayments can provide a useful indication of how well households are managing their credit card spending and debt. However, the data needs to be considered in the context of the broader environment. For example, a decline in the ratio of repayments to spend may be a sign of concern in times of financial stress. Equally, in a period of growth and strong underlying spending, it may reflect growing confidence in the households ability to meet borrowing obligations. The data is best viewed alongside other indicators including the data for outstanding balances (see Section 6). Baht (Billions, Inflation adjusted) Chart 14 Visa credit card spend versus repayments Visa repayments growing quickly Data source: Visa International 4 Total repayments Credit card spend 13 14

10 Credit card repayments in Thailand Chart Visa credit card repayments relative to total spend A decline then stabilisation in the ratio of repayments to spend 1% % 8% 6% 4% % % Data source: Visa International 4 Visa data suggests that Thai credit cardholders have a healthy credit card repayment record with total repayments on Visa credit cards during Q4 3 reaching Bht 55.9 billion. This is more than double the repayment figure for Q4. Importantly, as is shown in Chart 14, Thai credit cardholders have increased their repayments at a similar rate as their increased spending. This is a strong indicator that cardholders are spending based on their ability to repay. Visa credit card repayments fell steadily relative to credit card spend between Q and Q4 1 and stabilised thereafter (see Chart ). During 3, repayments represented an average of 95.3 percent of the total spend, for every Bht 1, cardholders spent they repaid Bht 953. This is in line with the repayment- -to-spend ratio witnessed in other Asia Pacific countries, such as Hong Kong at percent, Malaysia at 94 percent, Singapore at 96 percent and Taiwan at 95 percent. A repayment-to-spend ratio close to percent means that cardholders are paying off their credit card liabilities at a similar pace as they are accumulating them. 6 Credit card debt in Thailand This section examines recent trends in credit card balances, drawing on Bank of Thailand and Visa data. It identifies the proportion of balances that is revolving debt and also examines the affordability of credit card debt. All time series comparisons of debt make adjustments for the impact of inflation over the relevant period. Key points As at the end of Q4 3 total credit card balances outstanding reached Bht 76.2 billion 31 percent more than Q4 2 in inflation-adjusted terms. Most of this growth is due to increased credit card take-up. According to Bank of Thailand data, average debt per card increased by 6.5 percent over the year to Q4 3 in inflation-adjusted terms. Average household disposable income grew by 8.4 percent in inflation-adjusted terms over the year ending Q4 3. That is, Thai households ability to finance growth in credit card debt improved over this period. Other available evidence also suggests that most Thai credit cardholders are able to manage their credit card debt very well. Credit card delinquency rates and default rates have fallen considerably in recent years and are now running at historical lows. In Q4, the Visa delinquency rate was around 7 percent, but by Q4 3 it had fallen to around 4 percent. In Q4 1, the default rate was 5 percent. By Q4 3, it had fallen to 3 percent. Visa data shows that as at the end of Q4 3 around 57 percent of credit card debt did not incur interest, which is considerably higher than it was during 1998 and the first half of The average balance per card at the end of 3 was Bht 18,37. This is an increase of almost 7 percent in inflation-adjusted terms over the year to Q4 3. However, the Q4 3 average balance per card figure is substantially less than the Bht,13 average balance per card in Q3. Credit card debt represented less than 4 percent of total household debt in Thailand as at the end of Q4 3. In the last five years, national credit card debt has not exceeded 4.1 percent of total household debt. 16

11 Credit card debt in Thailand Credit card debt in Thailand Chart 16 Total credit card balances outstanding in Thailand 6.1 Total balance outstanding 6.2 Average balance per card Chart 18 Average credit card balance per card in Thailand Baht (Billions, Inflation adjusted) Baht (Billions, Inflation adjusted) Outstanding balances rising since Data source: Bank of Thailand 4. Chart 17 Credit card spend and balances outstanding, The recent growth in outstanding balances has paralleled that in spend Data source: Visa International 4. Credit card spend Balances outstanding The total balance outstanding is the amount owing on a credit card at the end of a billing cycle, both interest and noninterest-bearing. This is the balance outstanding from the previous billing cycle plus total charges on a credit card during a billing cycle less repayments within the billing cycle. Total balances outstanding in Thailand reached Bht 76.2 billion in Q4 3 (see Chart 16). 7 In inflation-adjusted terms this figure is 31 percent higher than Q4 2 and 8 percent higher than Q4 1. Visa data reveals a similar trend in balances outstanding over the past five years to Bank of Thailand data (see Chart 17). Visa credit card balances outstanding increased by 34 percent over the year to Q4 3 in inflation-adjusted terms to Bht 61 billion. However, these aggregate statistics do not capture the trends that are emerging at an individual card level. As the average balance per card data presented in Section 6.2 reveals, growth in credit card debt in Thailand is being driven mostly by growth in the take-up of credit cards. The Bht 76.2 billion national credit card debt figure translates to an average balance of Bht 18,37 per card. The average balance per card increased by almost 7 percent in inflation-adjusted terms over the year to Q4 3. However, the Q4 3 average balance per card figure is substantially less than the Bht,13 average balance per card in Q3 (see Chart 18). Visa data also reveals a significant decline in average credit card balances per card in Thailand between mid-1999 and mid- 3 (see Chart 19). The average Visa credit card balance per card as at the end of Q4 3 was 28 percent lower than the figure for Q in inflation-adjusted terms. 6.3 Credit card balances relative to spend The ratio of credit card balances to spend will reflect how households time their repayment decisions. An increasing ratio of credit card balances to spend would suggest that households are paying off their credit card balances more slowly over time. Baht (Thousands, Inflation adjusted) Baht (Thousands, Inflation adjusted) Balance per card have been broadly stable in recent years 3 5 Data source: Bank of Thailand 4. Chart 19 Average Visa credit card balance per card in Thailand Balance per Visa card has fallen since Data source: Visa International 4. For Thailand, as shown in Chart 9 and Chart 18, both average credit card spend and outstanding balances have been fairly stable in recent years, with quarterly credit card spend closely matching the level of outstanding balances. By implication, this 7 Bank of Thailand 4. means that (quarterly) repayments have 17 18

12 Credit card debt in Thailand Credit card debt in Thailand Baht (Thousands, Inflation adjusted) Chart Average balances versus average spend, per credit card Convergence of average spend and balance 3 Spend per card 5 Balances per card Data source: Bank of Thailand 4. Chart 21 Credit card balances as a proportion of spend Balances to spend reduced significantly from the 199s levels % % % % 5% % Data source: Bank of Thailand 4. roughly matched the previous quarter s balance plus servicing costs. In contrast, repayments relative to spend tended to run at a higher level in the late 199s (see Section 5), which saw average balances gradually decline. These patterns can also be seen in Chart 21 which depicts a marked reduction in the ratio of credit card debt to credit card spend. In the late 199s, credit card debt was twice that of the quarterly credit card spend. This dropped sharply to percent toward mid-1. Although overall credit card spending has increased, the ratio of credit card debt to spend has decreased substantially, suggesting that Thai cardholders have made a deliberate decision to reduce their credit card balances significantly over the years. 6.4 Credit card debt relative to limits The Bank of Thailand does not report total credit card limits data. In other countries this data facilitates investigation of the extent to which cardholders are accumulating debt up to card limits. For instance, limits data in Australia, reveals that credit card debt is consistently less than 38 percent of total card limits. The data suggests that factors other than credit limits are influencing cardholder spending decisions. If the Bank of Thailand were able to report limits data in the future, it would reveal the extent to which Thai 6.5 Balances attracting interest Credit card debt refers to the total amount that cardholders owe to their issuing institution. This includes amounts that both attract interest (called revolving debt) and amounts that do not attract interest (called non-revolving debt). As credit card debt represents a liability to Thai households that must be repaid then it represents an indicator, like all measures of debt, the extent to which future income or wealth must be used to repay that debt. As at the end of Q4 3, national credit card debt in Thailand stood at Bht 76.2 billion. Not all of this national credit card debt attracts interest. Again, the Bank of Thailand does not identify the proportion of credit card balances that attracts interest (i.e. revolving credit card debt) and so trends using Visa data are reported here. As Chart 22 shows both the balances attracting and not attracting interest have been trending upward between 1998 and 3. At the end of Q4 3, 57 percent of Visa credit card debt (35 billion Baht) did not bear interest, 33 percent higher from a year earlier after adjusting for inflation, while the remaining 43 percent of credit card debt (Bht 26.3 billion) was interest-bearing. As demonstrated in Chart 23, the proportion of interest-bearing credit card debt has been declining in Thailand for the last three to four years. Baht (Billions, Inflation adjusted) % 6% 5% 4% 3% % % % Chart 22 Total balances not attracting interest versus those attracting interest Total balances not attracting interest Total balances attracting interest Data source: Visa International 4. Chart 23 Proportion of total Visa balances attracting interest in Thailand Data source: Visa International 4. consumers ration their debt decisions within credit card limits. 19

13 Credit card debt in Thailand Credit card debt in Thailand Chart 24 Visa revolver rate in Thailand Revolver rate in has been relatively stable 6% 5% 4% 3% % % % Data source: Visa International Transactors and Revolvers Cardholders can be split into two broad groups. The first group is referred to as transactors who are those cardholders who pay their cards in full and do not pay interest charges. The second group is referred to as revolvers who are cardholders who do not pay their cards in full and therefore incur interest charges. There are cardholders who are always transactors, there are cardholders who are always revolvers and there are cardholders who move between the two depending on their 6.7 Credit card debt relative to total household debt Credit card debt is one component of household debt. The other components include money borrowed to buy a house or for other personal purchases, such as a car or other durable goods and services. Like credit card debt, housing and other personal debt must be paid for out of future income and wealth. They therefore place constraints on the ability of future income and wealth to buy future goods and services. Chart Credit card debt as a proportion of household debt Credit card debt 3.7% Credit card debt is a minor part of total household debt Housing and other debt 96.3% Data source: Bank of Thailand 4 and National Statistical Office Thailand 4. monthly financial circumstances. The data published by the Bank of Thailand does not include any information on the ratio of transactors to revolvers. However, Visa data does collect this information and this is set out in Chart 24. This data shows that since the Q the percentage of revolvers has been fairly steady at approximately 4 percent. What this means is that six out of ten accounts are being repaid in full each month and not incurring interest charges. The remaining four out of ten accounts are not being repaid in full each month and are incurring interest charges. By way of comparison, the percent of Visa credit card balances that were interest bearing as at the end of Q4 3 was around 7 percent in Australia, 63 percent in Hong Kong, 69 percent in Malaysia, 62 percent in Singapore and 44 percent in Taiwan. Total household debt in Thailand as at the end of Q4 3 totalled Bht 2,87 billion. 8 As indicated in the Chart, credit card debt represented less than 4 percent of total household debt in Thailand as at the end of Q4 3. Indeed, throughout the last five years, national credit card debt has not exceeded 4.1 percent of total household debt. By comparison, in Australia credit card debt accounts for 5 percent of total household debt as at the end of Q4 3, while it accounts for about 7.4 percent in Hong Kong. 6.8 Affordability of credit card debt Most of the available indicators of credit card affordability suggest that the majority of Thai credit cardholders are able to manage their credit card debt quite comfortably. Delinquency, default and net credit losses as a proportion of total balances outstanding, are three indicators that measure the extent to which cardholders are having difficulties in repaying their credit card liabilities. The delinquency figure is the broadest of the measures, encompassing all those cardholders who are overdue in paying their credit card liabilities by 3 days or more. The default rate and net credit loss as a proportion of total balances outstanding indicators are narrower measures that focus on those cardholders in real difficulty. The default figure encompasses all those cardholders who are overdue in paying their credit card liabilities by 9 days or more plus those cardholders who have been deemed unable to repay their credit card debt (net of any money collected from those cardholders). 8 The National Statistical Office of Thailand 21 22

14 Credit card debt in Thailand Credit card debt in Thailand Chart 26 Visa delinquency rate in Thailand Delinquency rate 4% 35% 3% % % % % 5% % Data source: Visa International 4. Chart 27 Visa default rate in Thailand Default rate reduced significantly 4% 35% 3% % % % % 5% % Data source: Visa International 4. Chart 28 Visa net credit losses as a proportion of total balances outstanding Net credit losses remain at low levels 4% 3% The net credit loss figure (expressed as a proportion of total balances outstanding) is the narrowest of the measures, focusing only on those credit cardholders who have been deemed unable to repay their credit card debt (net of any money collected from those cardholders) and the debt has been written off Delinquency rate Visa data indicates that delinquency rates have more than halved over the three years to Q4 3. In Q4 the Visa delinquency rate was around percent, but by Q4 3 it had fallen to around 4 percent (see Chart 26). Delinquency rates were much higher in the period prior to Q4. In Q the delinquency rate was 21 percent and in Q it was 37 percent Default rate According to Visa data, credit card default rates have more than halved over the two years to Q4 3 (see Chart 27). In Q3 1 the default rate stood at 7.3 percent. By Q4 3 it had fallen to 3. percent. Default rates since Q4 have been substantially below the peak of 36 per cent recorded in Q Credit card net credit losses After a period of time, credit card balances that attract interest are written-off by financial institutions. The amount that is written off is referred to as gross credit losses. Some of the amount that is written off is subsequently recovered from cardholders. Subtracting the recovered amount from the gross credit losses gives net credit losses. Net credit losses as a proportion of total balances outstanding is an important indicator for several reasons: it can influence the profitability of the credit card business; it is an indicator of the efficiency of the collections process which is an important part of the overall management of the credit card business; and it is an indicator of the overall financial position of the debtor. Chart 28 presents Visa data on net credit losses per quarter expressed as a proportion of total balances outstanding between 1998 and 3. During Q4 3, net credit losses amounted to around Bht million or.37 percent of total Credit card balances relative to household income A comparison between credit card balances and household disposable income will provide a further indication of the ability of households to service their credit card liabilities. As with the statistics in earlier sections, these figures will be heavily influenced by the strong increase in the number of households with credit card accounts. To make allowance for this trend, Chart 29 depicts the ratio of outstanding balances per credit card account to average household disposable income indexed to Q As such, it combines Visa data with data from national sources. There is a pronounced downward trend in the ratio from the late 199s before it begins to stabilise over the past year or so. In 3, real average household disposable income increased by 8.4 percent, closely matching the 8.8 percent lift in average balances per account in inflation-adjusted terms. These trends, thus, reinforce the message from other indicators that households, on average, appear to be managing their credit card liabilities comfortably. 2% balances outstanding. 1% % -1% Data source: Visa International 4. 9 The ratio is presented as an index in order to abstract from the compositional influences on the ratio. In particular, only one in every 4.4 households has a credit card in Thailand, however the average household income was taken across all households. The average household income of credit card holders is likely to be higher than the average across all households, and so the percentages calculated in this ratio would not accurately portray average balances per account as a proportion of household income for credit card holders. The compositional issues, however, will have minimal impact on the broad trends evident in the chart

15 Chart 29 Index of the ratio of Visa credit card balances per account to average household disposable income Credit card debt has become less onerous relative to income % 5% 4% 3% 2% 1% % Credit card debt in Thailand Data source: Visa International 4 and National Statistical Office of Thailand 4. Chart 3 Credit card balances as a proportion of GDP in Thailand Increased penetration lifts the ratio of credit balances to GDP Data source: Bank of Thailand 4 and IMF Credit card balances relative to GDP Finally, credit card balances are compared with GDP. GDP includes not only household income but also the income of business. Rather than duplicate the pattern in the previous chart, we compare unadjusted credit card balances with GDP. Thus, this measure will incorporate both the increased penetration of credit cards and any movement in the average balances to GDP. National credit card balances in Thailand were equivalent to 4.9 percent of GDP as at the end of Q4 3. In every quarter since Q balances have never exceeded this share of GDP (see Chart 3). Credit card balances as a share of GDP reached a low of 2.9 percent as at the end of Q Visa debit cards This section uses Visa data to investigate recent trends in Visa debit card uptake and transactions. Key points As at the end of Q4 3, there were 6.7 million Visa debit card accounts in circulation in Thailand. On average, debit card account uptake has been growing between Q and Q4 3 at 28.1 percent per quarter. Debit card spending during Q4 3 was Bht 139 billion or Bht,9 per account. Debit card spending experienced strong growth between Q4 and Q4 3 by on average.5 percent per quarter on an inflation-adjusted basis. During Q4 3 Thai debit cardholders made 31.9 million debit card transactions at both point of sale and for cash withdrawal, at an average of four transactions per card per quarter. On average debit card use per card decreased by 1.1 percent per quarter between Q and Q4 3. During Q4 3, Thai debit cardholders spent Bht 139 billion worth of debit card transactions, at an average of Bht,9 per account per quarter. On average debit card spend per account grew by 1.8 percent per quarter between Q1 and Q4 3 in inflation-adjusted terms. Electronic payment methods, including both credit and Visa s debit card products, are growing in Thailand. While we have described in some detail the movements in credit card transactions over the last five to six years we have not as yet touched on the growth of Visa s debit card product. As at the end of Q4 3, 6.7 million Visa debit card accounts were in circulation in Thailand. Over the year ending Q4 3 debit card account uptake grew by 47 percent, 24 percent more than the growth in Visa credit card accounts. Over the longer time period Q to Q4 3 the number of debit cards in circulation grew on average by 28 percent per quarter. During Q4 3, Thai debit cardholders made 31.9 million debit card transactions, at an average of four transactions per card per quarter. Over the year ending Q4 3, the total number of debit card transactions grew by 37 percent, while transactions per account fell by 7 percent. Over the longer time period Q to Q4 3 debit card transactions per account have decreased on average by 1.1 percent per quarter. Debit card spending during Q4 3 was Bht 139 billion or Bht,9 per account. Total debit card spending grew strongly between Q4 and Q4 3 by on average 11 percent per quarter on an inflation-adjusted basis. Debit card spend per account grew on average over the same period by 2 percent per quarter. 26

16 8 The way forward The combination of a stronger economy and a more robust financial system has provided an environment where the use credit and debit cards has steadily expanded. Moreover, while it is important to monitor the expansion of the credit card market, in many respects the market in Thailand is still behind that of the more developed economies in the region. The challenge is to ensure that further development of Thailand s financial markets, including the credit card market, occurs without exposing the economy and individuals to unsustainable or unaffordable increases in credit. A strong information base will be crucial in any such assessment and, it is hoped, that Visa s reports will form a valuable contribution to this exercise. The data in this report should provide some comfort to policy-makers. Most of the recent growth in aggregate credit card spending and debt in Thailand is due to increased credit card penetration. There is no evidence of unsustainable increases in credit at an aggregate level; to the contrary, on most indicators, credit liabilities are being handled comfortably with risk indicators tending to show some signs of improvement. Credit card debt accounts for less than 3 percent of total household debt in Thailand. Consequently, if debt accumulation by Thai households does become an issue in the future, it is most unlikely that the credit card markets will play a significant role. Data limitations constrain our capacity to undertake more comprehensive analysis of credit card take-up, use, spend, limits, repayments and debt in Thailand. The Bank of Thailand could stimulate more informed public debate on credit card use and debt by collecting and publishing national data relating to number of accounts, number of transactions, total limits, total repayments, and balances attracting interest. Given the Thai government s concerns about credit card use by individuals on low incomes, it would also be useful if the Bank of Thailand could collect and publish data on the extent to which household spending and credit card debt accumulation varies with income. The number of credit cards in Thailand grew by 23 percent in the year to Q4 3. However, this growth is occurring off a relatively low base. As at Q4 3 there were 4.2 million credit cards in circulation in Thailand. When spend and debt are considered on a per card basis, Bank of Thailand data reveals that since Q4 average spend per card and average balance per card have been trending downwards. Indeed, average spend per card has declined nearly every quarter since Q4. The average balance per card in Q4 3 was Bht 4 less than Q4 in inflation-adjusted terms. Available evidence suggests that most Visa credit cardholders are managing their credit card debt well. The incidence of credit card default and delinquency has more than halved over the last three years. In the year to Q4 3 average household disposable income grew by 4.5 percent more than the average balance per card. Thus, on average, credit card debt in Thailand was more affordable in Q4 3 than it was in Q4 2. One limitation of the available data is that it does not allow an analysis of spending and affordability patterns across income groups. For example, there is insufficient data to comment on the extent to which credit card balances vary from this average across low, middle and high income households

17 Glossary of key terms Indicator/Term Definition Indicator/Term Definition Balances The amount owing on a credit card at the end of a billing cycle, both interest and non interest-bearing. This is the balance outstanding from Household expenditure All forms of expenditure by households as recorded in National Statistical Office of Thailand household surveys. the previous billing cycle plus total charges on a credit card during a billing cycle less repayments within the billing cycle. Household debt All forms of debt accrued by households including household housing related debt, and household other personal debt. Balances accruing interest Includes any part of total balances on which the customer has been or will be charged interest. Household disposable income Household disposable income is the total of income received minus income tax and minus other income payable. Credit card Credit card account Credit card limits A plastic payment card that can be used at a wide variety of merchants to make purchases and which offers a wide range of credit facilities and other benefits to cardholders. The card usually offers an interestfree period and a revolving line of credit. An account held with the card issuer to which one or more credit cards are linked. Refers to the sum of credit card limits approved on all credit card accounts in Thailand. Inflation adjusted Nominal Rate of debt turnover Repayments An adjustment (using a local price index) to a time series' nominal values to remove the impact of inflation. Value expressed in terms of its current price. Total balances divided by annual credit card spending. Captures all payments to credit card accounts including payments of interest, fees and other charges billed to the account. Credit card spend Credit card spend includes all amounts spent on bank-issued credit cards during the quarter. This includes transactions on accounts with and without an interest-free period. It includes cash advances and payments for goods and services. Credit card transactions All transactions made using a credit card including cash advances and other payments for goods and services. This does not cover charge cards. Default rate Balances that are outstanding for more than 9 days plus outstandings that have been written off as a proportion of total balances, expressed as a percentage. Delinquency rate Calculated as delinquent balances divided by total balances outstanding, expressed as a percentage. Delinquent balances are balances that are over 3 days due. Gross Domestic Product (GDP) Is the total market value of goods and services produced in Thailand within a given period after deducting the cost of goods and services used up in the process of production but before deducting allowances for the consumption of fixed capital. Thus gross domestic product, as here defined, is 'at market prices'. It is equivalent to gross national expenditure plus exports of goods and services less imports of goods and services. 29 3

18 Charts and Tables Chart 1 Chart 2 Chart 3 Chart 4 Chart 5 Chart 6 Chart 7 Chart 8 Chart 9 Chart Chart 11 Chart 12 Chart 13 Chart 14 Chart Chart 16 Chart 17 Chart 18 Chart 19 Chart Chart 21 Chart 22 Chart 23 Chart 24 Chart Chart 26 Chart 27 Chart 28 Chart 29 Chart 3 Number of credit cards in Thailand Number of Visa credit cards in Thailand Number of Visa credit card accounts in Thailand Number of merchants accepting Visa credit cards in Thailand Visa credit card transactions perquarter National credit card spend in Thailand Visa credit card spend in Thailand Average spend per quarter on Visa credit card accounts in Thailand Average spend per credit card per quarter in Thailand Average spend per Visa credit card per quarter in Thailand National credit card spend as a proportion of Thai GDP per quarter National credit card spend as a share of household expenditure Household saving rate in Thailand Visa credit card spend versus repayments Visa credit card repayments relative to total spend Total credit card balances outstanding in Thailand Credit card spend and balances outstanding Average credit card balance per card in Thailand Average Visa credit card balance per card in Thailand Average balances versus average spend, per credit card Credit card balances as a proportion of spend Total balances not attracting interest versus those attracting interest Proportion of total Visa balances attracting interest in Thailand Visa revolver rate in Thailand Credit card debt as a proportion of household debt Visa delinquency rate in Thailand Visa default rate in Thailand Visa net credit losses as a proportion of total balances outstanding Index of the ratio of Visa credit card balances per account to average household disposable income Credit card balances as a proportion of GDP in Thailand

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