Thailand central bank governor seeks to tackle debt problem

Q: As with many emerging markets, Thailand has experienced serious market and currency volatility in the later months of 2018. What measures should emerging markets be taking to better protect themselves, and to distinguish themselves in the eyes of investors?

A: One of the most important elements is the external strength of each country, the external position of each country. It comes back to issues around what buffers you have, [things like] how much you have in foreign international reserves, how much you depend on foreign financing, the strain of the domestic financial systems. These are the main buffers that emerging markets will emphasise in an environment such as this.

Q: Thailand has historically had issues with household debt and real estate prices. How are you tackling this?

A: In 2018 we launched macro-prudential measures on credit cards and personal loans, because household debt had been a problem in Thailand for quite some time. We are in the process of conducting a hearing on the new mortgage measures. We will put some value limits on loans because we have seen some people using mortgage loans as a way to search for yield [by] entering into a second or third mortgage and using that to buy property.

We found some loopholes in the way that property prices have been applied, for example if you go to buy a property there is a selling price but obviously the developers will give you a lot of discount. When banks make decisions on lending, they use the selling price so sometimes people are getting cash back when you take out a mortgage loan. This is an example of search for yield behaviours that could have implications for financial fragility. We want to address them before we get hit. The date we have announced [for implementing the new measures] is January 1, 2019.

Q: Is this market upheaval a short-term correction, or should investors expect to see a longer period of uncertainty ahead?

A: I think we should expect to see a period of volatility further down the road. As I mentioned, normalisation just started with one systemically important central bank, the Federal Reserve, but we also have the European Central Bank and the Bank of Japan.

There have also been unexpected factors that have been added. The Fed has done a great job of preparing the market during the past two or three years as it started normalisation, [with] little effect on the market. Now you have trade tensions that add pressure on inflation in the US. These are all factors that haven’t been incorporated into the calculations of the Federal Reserve before and they were not in the calculations of the market before. So we should expect to see more volatility.