It has been 20 years since the Asian financial crisis took the region by storm. While all that is a thing of the past, apparently there are indicators of impending danger. The signs are “ominous,” warns consulting firm McKinsey & Co. As a member state of the Association of Southeast Asian Countries (ASEAN), Thailand may not be able to dodge this bullet.
An August report cited by McKinsey lists down the signs: (1) More and more people are unable to pay their debt (2) Repaying loans has become stressful for debtors (3) Lenders are exposed to more risks (4) Risky practices like shadow banking
While it’s still too early to tell whether these growing pressures can sufficiently incite a new Asian crisis, vigilance among government agencies and businesses may be in order. To contain this brewing crisis, different institutions need to work together to track down possible causes.
This heads-up from McKinsey comes at the heels of a sluggish global economy. As companies in Thailand and the rest of Asia struggle to hit revenue quota in the midst of a trade war between US and China, the risk debt investors are facing grows. On a brighter note, credit metrics of Asian dollar bond issuers have lately improved, according to industry experts. Moody’s Investors Service believes that, through strong monetary and fiscal policies, a number of economies in Asia can ward off the local effects of a global economic slowdown.
McKinsey assessed the cash flow of 23,000 companies from 11 countries in the Asia-Pacific region. They discovered that the majority of countries suffer from “significant stress” where debt obligations are concerned. For newly industrialised countries like China and India, pressures related to debt payment have continued to rise since 2007. Such stress levels are lower in theUS and the UK around the same timeline.
The analysis shared by McKinsey revealed that corporations allocate a great chunk of their earnings to debt repayment. In 2017, a quarter of long-term debts in Indonesia, India and China was held by companies with a debt-earning ratio of below 1.5.
Since the 1997 financial meltdown that rocked Asia, financial safeguards have been implemented to prevent history from repeating itself – especially in countries like Thailand, Indonesia, China, Korea and other Asian countries. The crisis had a long-standing impact on industries.
McKinsey suggests that the following be monitored to avoid triggering a crisis: (1) Debt repayment defaults
(2) Exchange rate fluctuations
(3) Errors in liquidity
Studies show that real estate markets in Thailand and other ASEAN nations helped trigger the 1997 Asian financial crisis. Not only did Thailand have an excessive amount of foreign debt, which pushed the country into bankruptcy, but there were also several unpaid domestic mortgage loans that exacerbated the crisis.
If you are a property owner and you fear that the currently slowing Thai economy may take a turn for the worse, our best advice would be to sell your property as soon as possible.
The best time to sell your property is before a financial crisis. All your prospects will be closely monitoring their finances so buying a home is not the wisest decision to make when the economy crashes.
In the event – heaven forbid – the crisis does hit, what are you supposed to do? Crises offer a silver lining for many investors. Property prices tend to drop drastically during a crisis. If you have money saved for the rainy days, then this is the perfect time to buy a property.
Now's the best time to sell your property in Thailand. Click here if you have a unit or house and lot to advertise.
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