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Credit Debt and Personal Bankruptcy Rates are Rising as Economies Weaken in Asia

Source: www.cnn.com, 

"Sour note as broke Asians face the music", August 2 2002

Personal bankruptcies in Singapore were up about 12 percent last year, 25 percent in South Korea, and in Hong Kong, personal bankruptcy levels have skyrocketed: from less than 1,000 in 1997, to more than 13,000 in the first half of 2002 alone, just under the total for all of last year.

The Hong Kong credit and collection association says the problem has been exacerbated by a relaxation in the rules.  The government in 1996, we had an amendment on the bankruptcy ordinance, they said everybody, if they file for bankruptcy in four years, they can get off with their loans," says the association's vice-chairman, Bobby Rozario.

That has put a huge strain on the banks.

Even Hong Kong's Canto pop star Kenny Bee has had to face the music.

Last month the once wealthy heartthrob joined the growing ranks of Asians saddled with massive debts they cannot pay back.

A tearful Bee told a news conference: "the economic situation is very bad. Many people like me suffer from negative equity, or are filing for bankruptcy."

The rise in bankruptcies marks a dramatic shift in the way Asians are spending money.

"Traditionally what the Asian consumer has done has been to save," says Paul Sheehan, banking analyst with ING.

"What we have now over the past few years is that the consumer has been unleashed and just as everywhere in the world people have started to manage their consumption and they borrow more."

Over the past decade, household debt as a total of the whole economy has more than doubled in Hong Kong, Singapore, and South Korea.

The number of credit cards per person for people aged 20 or more is rising. In Hong Kong it's an average 1.8, while in Singapore it's slightly less than one. In South Korea it's 2.5 and in Taiwan it's 1.75.

Deutsche Bank analyst Todd Martin explains: "part of it is driven by low interest rates, part of it is stimulation by governments to get people to start spending more. "  But with credit cards comes rising debt levels. And as economies in the region weaken, the huge expansion in credit has spelled trouble for many.

According to ING's Sheehan, the banks are finding they lose 100 percent of their exposure to the customer and that is hitting the bottom line of Hong Kong banks very hard over the last few quarters."

Delinquencies in Hong Kong meanwhile soared 142 percent to a record 70.5 million dollars for the first half of the year -- and analysts say the rising trend wont peak until sometime in the middle of 2003.