Lending in Thailand and SE Asia, with Phadet Charoensivakorn and Marco Chu

Thailand is one of my favourite markets. My main memories are of the fantastic food, the vibrant streets, and the perfect beaches but I also helped to roll out the first-ever national credit bureau score there and that’s what we’ll be talking about today. Thailand is a young country with a fast-evolving fintech scene, so I have pulled together Khun Phadet Charoensivakorn (COO of the National Credit Bureau) and Marco Chu (Business Development Director for TransUnion in SE Asia).

Together we discuss the state of the Thai market, how it fared during COVID, how it is changing, and the larger regional context as we touch on working with markets with contrasting risk baselines.

Phadet is on LinkedIn, if you have more questions about the Thai credit landscape, or email him at phadet@ncb.co.th (you can also read more at https://www.ncb.co.th/about-us/history-en)

While you can find Marco on LinkedIn, too, and read more about my old colleague's work in the region via https://www.transunion.hk/home 

If you have any feedback, questions, or if you would like to participate in the show, please feel free to reach out to me via the contact page on this site.

Regards,

Brendan

The full written transcript, with timestamps, is below:

Phadet Charoensivakorn 0:00

The consumer, they don't have the financial literacy, so when they go in to borrow the money from the banks, they don't know what the outcome will be - either they will get the loan or they can be denied. And they think that credit bureau is a bad guy, the reason that they cannot get the loans. So this one is the starting point, why we need to do something.

Brendan Le Grange 0:30

Welcome to How to Lend Money to Strangers with Brendan le Grange. I'm not sure if they still do it this way, but when I was working at CapitalOne, we used to use a lot of case studies in our hiring process - the way you thought was always more highly valued than any banking experience you might bring to the table on day one. I liked that approach. So much so that when I left for other companies with less-structured recruitment processes, I took it with me.

Alas, good manners - and perhaps an inability to plan ahead - meant that I didn't take the scripts with me. And in my memory, it was only really the high level storylines that stuck. So the Sydney Harbour Ferry case became the Cape Town Harbour Ferry case with numbers that varied in every iteration. I wasn't too bothered because, again, I was more interested in how the candidate thought and whether they could do some basic math, though I understand that it could be a bit disconcerting for a candidate to be working out a formula that says a ferry needs to transport 20,000 people per trip just to break even and I apologise for that.

Despite this, it seemed to work. I've certainly been able to leave several roles in better hands than my own. With the likes of Thys Rossouw and Eric Chung being fantastic examples from either side of the world. And another colleague I'm proud to say has replaced me, is today's first guest, Marco Chu, who is here to talk about the credit landscape in Southeast Asia. And joining Marco is a Phadet Charoensivakorn who's going to give us a deeper dive into lending in Thailand.

Marco Chu, welcome to the show. You're currently the Business Development Executive at TransUnion in Hong Kong, but with a remit that covers, among other things, their interests in the Southeast Asian markets. Now, I've had the pleasure of working with you, but for those who haven't been so lucky, let's start with a quick look at your background.

Marco Chu 2:40

I was born in Hong Kong, and moved to the US after elementary school. I grew up in the 90s and it was a fascinating time: personal computers and internet are becoming more affordable, and that was life changing, I would say, because looking at things digitally becomes a second nature of mine, right? So I started my career in banking, I worked as an analysts, like a lot of people. And after a few years, I came back to Hong Kong and just start bouncing around a few sales jobs, and gradually picked up a role here and TransUnion.

Brendan Le Grange 3:15

And you're helping TransUnion to deliver its products and services to Southeast Asia, we of course work together in Thailand, a market that will deep dive into in some detail with Khun Phadet later, but before we focus on just the one market, let's talk about that broader scope and what TransUnion is doing in Southeast Asia.

Marco Chu 3:37

Of course, so we offer products, services and solutions to credit bureaus and lenders in the region. TransUnion has credit bureaus in Asia - one in Hong Kong, one in Philippines, and one in India - me and my team are actually working on everything outside of those three markets.

So it's a pretty big area. And it's a fascinating time and place to be. The main product that we have is the generic bureau score in Malaysia, Singapore and Thailand, as well as some consumer insights and consulting services to lenders as well as credit bureaus. And of course, we have some global solutions such as Iovation and CAMEO.

I will say the primary mission is to share our knowledge and experiences with the industry. We actually gave ourselves a mission, right, and the mission is to promote credit inclusion. Now, financial inclusion. That's a very good soundbite a lot of people keep bouncing it around in the past few years, but financial inclusion can actually mean a lot of stuff, right? I mean, if you have a savings account that's financial inclusion. If you have a digital wallet, then now you're in the ecosystem, you're financially included as well. But there's something more important, right? I mean, financial inclusion is too broad and is nowhere near as life changing as credit inclusion - that a consumer can get credit when they need it, and at affordable price.

Brendan Le Grange 5:10

When you and I were working together, it was two people doing a half their time overseeing that area, but it looks like and sounds like you've grown that role quite a bit. And I think I was looking at LinkedIn and saw you were even recruiting in Bangkok - so do your expansion roles include actually hiring staff and building out new functions in the area, or are you still primarily serving it out of Hong Kong?

Marco Chu 5:35

Well, I'm based in Hong Kong still, but you're right, we are reaching out, we are expanding in Thailand at the very least. And frankly, Thailand is a very exciting market, energetic, very open to new ideas, they have the right talent, and it's a growing economy. And growing economy means more capital and more credit needs, so it's an exciting market we want to be in.

Brendan Le Grange 6:01

joining Marco today, we have Khun Phadet Charoensivakorn. Khun Phadet, it's a pleasure to be chatting to you again. You're the Chief Operating Officer at NCB, Thailand's National Credit Bureau, where you've worked for 23 years - so I think it's safe to say that you know the Thai credit landscape better than almost anyone else. But before we talk about what's happening in Thailand and the lending environment there, who is NCB and where do you fit into the market landscape?

Phadet Charoensivakorn 6:33

Thank you, Brendan. And 'hi everyone'. My name is Phadet Charoensivakorn and I'm working at NCB in the position of Senior Executive Vice President, or as Brendan has mentioned, this is called the COO. Let me talk about the NCB and what are we doing. So NCB stands for the National Credit bureau and we are the only credit bureau in Thailand.

The credit bureau started since the Asian financial crisis. I remember it's 1997 - at that time, most of the financial institutions and many credit granters will collapse. Then we got the IMF help, providing funding to Thailand. And we commit to set up the credit bureaus since that time.

So there were credit bureaus set up in the 1997, and one is name CCIS - promoted by the Bank of Thailand and the Thai Bank Association - they collect majority the credit information for the corporate. The other category is called Thai Credit Bureau, this one is promoted by the Ministry of Finance and some banks. And then they decide to merge the CCIS and TCB together in 2005, to reduce the cost for the members because they need to be the members of both bureaus, and then we become the National Credit Bureau.

And because of the names everybody thinks we are member of the government part: no, we are not, we are a private credit bureau. We collected two types of the credit information that appears, one is called consumer and other one is called the commercial. As of December 2021, we got around 31 million subject records for the consumers or is around 121 million accounts, and for the corporate we've got about 340,000 subject records about 4.5 million accounts.

Brendan Le Grange 8:35

You are, at least somewhat rare, in that you do have that combination of the SME and the consumer data, which I think makes a true bird's eye view of the market.

Phadet Charoensivakorn 8:46

Why I mentioned about the credit information database that we're having right now, is because the law is not allow us to keep other credit information information that is also make a significant roles in the credit decisioning process as well - what we call the alternative data, your water supply abuse and technical abuse. That's one might represent your behaviours, which is similar to the credit information that you that you're having right now, right?

Brendan Le Grange 9:14

When people talk about Asia, India and China can steal the headlines a bit, but Thailand has 70 million people, it's got a thriving tech scene, and in normal times it had an economy that was growing pretty comfortably - so it is actually one of the most attractive markets in that region. What does the lending landscape look like in Thailand at the moment?

Phadet Charoensivakorn 9:41

Before I talk to the lending market landscape today, I just want to refer back to the past because at that time the technology is not booming so much. Most of the members of NCB are mostly using face-to-face, the borrower had to show up at the at the banks or non-banks, and then they need to suply all the documents to apply for the loans, right. And that is making a lot of difficulties for both borrower and also the lenders. So, most of the banks and non bank at that time, they want to get the secure market in their portfolios.

But of course, the lending market today is significantly changed from the past. Thailand is trying to do the digital transformations. Unfortunately, we also has the unexpected crisis, the COVID 19 pandemic, so those are the big two factors caused a significant changing in the lending market in Thailand.

Once we move into the digital age, we cannot cut the FinTech out. You can see the fintechs in terms of the P2P lendings or somehow I think most of the fintechs today they are gearing towards the Buy Now Pay Laters. But unfortunately the fintechs, by law, they cannot become a member of NCB yet. A lot of fintechs, they're interested to be the member of NCB because they foresee that if they become the member of NCB they can benefit from the data coverage that NCD has, to minimise the risks that are they are facing right now.

So we expect them to be members soon, because the law is in the process to be changed. But they did a lot of study to see how they had to submit the data, how they manage the data, how they use our data.

Brendan Le Grange 11:43

Khun Phadet, I think it's only been four years since I was in Bangkok last, but I would say those four years have included some pretty wild years. So what has the pandemic done to Thai borrowing? You sort of alluded there that maybe it's made it a little bit more conservative, that lenders are moving a little bit away from risk. But what did you see happen in the marketplace was the relatively controlled situation has recently been rising?

Phadet Charoensivakorn 12:09

We cannot tell exactly, what will be the big impact for the delinquency in the credit market - the Bank of Thailand issued the COVID release programmes, and the COVID release programme has made difficulties to see what will be happened, because the data is manipulated by the members, right? If you are in the COVID release programme, let's say that you normally used to pay like 10% but right now it's reduced to 5%. But you're also getting some new loans to survive during the COVID pandemic, you have no option, right, you have no choice, you need to get this load. So can you imagine that if you already fully booked up in your, I would say in your pocket, of course right now you might be surviving from that loan but when COVID ends, what will happen? Can you imagine that you got an unexpected burden? And sooner or later you cannot pay out. So that's why we foresee some risk might be raising.

So if we are talking about the NPR at this moment, we see roughly from the consumer database is about 7.2% Normally with the with the situation, right, I think we will see like 8%, right, but the debt has been suppressed. So it waiting for a chance to explode.

Yeah, SME itself is about the 4.6%. So right now, delinquency at this moment is unpredictable. But if you ask my opinion: I think we might see a lot of increasing in the NPL, maybe like going from 7% to like 9%, or 10% maximum.

Of course, if we're talking about two years ago, this situation is not expected as a risk by the banks and non banks. But as today's we have been living with them for almost two years, but they're not even been ended yet. Since the COVID data is coming every financial institutions even though from banks don't bank, they are getting big impact, right, they need to change the way that they are giving the loans to the consumers, they are moving towards the faceless process, right?

If we are talking about the faceless, you need to think about the platforms (apps). So that's why we are seeing a lot of NCB members gearing towards the platforms - probably need to try and form all the manual process in the lending to be the automated process on the platforms (apps). Within the platforms they can operate 24 x 7. The key is the KYC process, and the KYC process is a lot of effort to do that. And I think this is where the members are gearing towards after the COVID impact.

Brendan Le Grange 15:07

Now on the show, we love a credit score and the Thai credit bureau score is one that I'm obviosuly very fond of, having helped roll it out initially a few years ago. But for those that are unfamiliar with the market, who are maybe in the US or the UK, is that a score that's going to be very familiar to them? that looks and operates like a score in a big developed market?

Marco Chu 15:30

It would feel pretty much the same. I mean, it is still a credit score, it gives you a number that tells you how risky that particular consumer is. Nothing has really changed in that aspect. But in the back, there's a lot of changes, different countries have different credit markets, and each is a little bit unique in their own way. I mean, for example, in the US, you will have vast amount of auto loans, because you need to have a car in the States versus in Singapore or Hong Kong where not everyone will have a car.

And so is Thailand, right? Thailand is, I would, say credit under-served. But considering the size of the adult population, and among people that actually have a credit history, you can expect that a lot of them don't have conventional consumer lending products we would imagine in developed countries. One thing that's very interesting that they have, and we recently included in the score is, agriculture loans. Thailand have a good part of the GDP in agriculture, and farming loans work differently compared to most consumer loans. And we simply need to add that to serve our credit inclusion mission.

Brendan Le Grange 16:46

And so when I left Thailand, we had launched the credit score, but we were still in that early stage of doing road shows and getting the first clients on board. In the years since then, how has the market adapted and grown accustomed to the credit score? I'm guessing it would have been settling-in and a feature of the market just before COVID hit, so hopefully provided an extra level of protection and and security to lenders when when everything started going crazy.

Phadet Charoensivakorn 17:16

If you still remember, we (I mean Marco, you, and I) going to see the customer together. So at that time, I think our pain points is to sell in the score, right? You still remember that, but things have changed, right? Because some saying that the score has now worked well in good and bad economy situations, within the crisis of the COVID. I think the score is the only tool that the members then need to rely on, right, they cannot make a fast credit decisioning process without the appropriate risks tools - like credit score. Then you might get the wrong people in your portfolio.

And things have been expedited by the COVID-19 pandemic and also the digital transformations, they get the data fastly, they can make the decision fastly, that's why they can make benefit to the market. And not only the big enterprise, we saw very small companies like the higher purchase outside Bangkok, and also the selling cooperative that is the really unique loan process, they are still required to use the the score, especially when we are talking about the SME.

I think with SME, the big pain point is they cannot access the finance market, right, because nobody trusted me, right. But if you have this score, I think you might eliminated somehow those risks.

Marco Chu 18:55

This question has been asked in every single one of the market we are in when the pandemic first hit, "is your score stable? Is it still predictive? Is it still performing?"

And whenever you have a model in place that is actively operating, you need periodic monitoring - and we have been doing so. The results that we see are that it is working as expected. Of course, you will see some ups and downs in terms of credit risk grade band distribution, I mean, you will see that they are more risky consumers. But in terms of the performance of the model itself, I mean, it is doing its job. Where we score somebody and say that that person is more risky, at the end, we do see that group's default rate actually perform as expected, which is higher than the other point we see the risk rate to be very low the risk to which level is low.

So the score actually worked perfectly. I mean, it was way better than what the market would presume. Even the regulator's was kind of surprised to see that "wow, you guys are doing very good in this turbulent time".

Brendan Le Grange 20:04

And the other side of the credit score is the consumer-facing side. And when I was just doing some quick research for for this call, the top Google results were for Thai consumers on on how to access their own credit scores - has that been something that you've been pushing to build awareness among consumers as well, about what a credit score is, what their credit score looks like, and how to access that?

Marco Chu 20:30

So a couple years back, right around the score launch, we actually work with NCB, to explain to them what kind of offering we have, not only in the region, but at a global level. And as a lot of people will know, TransUnion has actually spent a lot more time and effort on direct to consumer business compared to our competitors. And that direct to consumer business is working very well in the US. We're trying to bring as much knowledge we have on the business and to the region. And then they will try to adapt it locally, and navigate through the obstacles that they will encounter.

This is how it works so well with our working relationship. And the consumer education part is exactly that. And to you, we have a thing about consumer education because, I mean, I hate to echo the slogan here, but we are here to 'make trust possible' - meaning that we are trying to bridge the information gap between lenders and borrowers.

And of course, being a lender it's very easy because they can always access credit bureau. But how can consumer know what they will look like in front of lenders? Right, so that's when DTC comes in. Simply we have the tool, we have the solutions in place, NCB looked at it, they understand it, and then they add in their flavour. So it actually served their purpose, but the background that's our knowledge and experience.

Phadet Charoensivakorn 22:07

Yeah, if you're talking about the direct to consumers, we need to go back to since we started the credit bureau. So when they started the bureau, we had very limited channels for them - only one branch where the customer can go and then buy their credit report. After I think a couple of years, or maybe four or five years later, the direct to consumer is the things that credit bureau needs to focus on. So we visited a lot of credit bureaus around the world, many credit bureau events, and most of the credit bureaus around the world, they pay more attention to the DTC customer, right? Because the consumer, they don't have the financial literacies, so when are they going to borrow the money from the banks, they don't know or what would be the outcome - either they can get the loans or they can be denied - and they think that credit bureau is a bad guy, the reason that they cannot get into the loans.

So this one is the starting point, or why we need to do something. So we try to work together with our partners in the financial market, or even somehow we work being with the regulators, to give the knowledge, the basic knowledge to the consumers, what is the credit reports? What are we doing in the credit bureaus? Why do we have to collect information, and then we we have been developed their score, the credit bureau score?

And within that, we saw a lot of credit bureau platforms using this the mobile applications for building the education for the consumer. So that's why we have been trying to give not only the other credit reports, but we also give them what is the sport? How would it help you to get a better life in the futures? How you make a good score? And what is a simulation if they want to get a better score?

Brendan Le Grange 24:05

Marco, you also cover other markets in Asia - are there any other stories in the region that you would like to discuss any other successes or interesting use cases?

Marco Chu 24:16

I think the another success story we have is Singapore. I mean, this is where it is different from Thailand and actually shows the complexity in the region and the sophistication needed to operate in these markets. So Singapore is a well developed economy, just like Hong Kong and the US and the UK, income level is very different, so naturally the credit offering is different. And we have built a Singapore score for a long time. We operate it for a very long time. And it worked just as well. In fact, the Singapore score, in terms of performance, is one of the best globally.

Brendan Le Grange 24:55

I think what's interesting with that, as well, more from a technicians point of view, is that Singapore is almost without risk. The delinquency levels in Singapore are so low that even coming from other low risk markets, you double check your numbers. There's almost no bads. And for anyone who's lending, that's great, you know, you're not picking up a lot of costs on losses there, but for anyone who needs to build a scorecard, bads are how we do that, you know, you usually want quite a few beds in your sample to be able to build a scorecard.

Marco Chu 25:31

Yes. And the coin is actually two sided, right. So some people will see that low bad rate means lower expected losses, lower collection costs, so therefore, it will be great for their business, right, but at the same time, risk and reward comes hand in hand. So the less risks the market has, the less meat on a table per se, you're going to have less customer who is willing to pay more for credit. In reality, this is where it gets interesting, and needs a little dive in. If we promote enough credit inclusion in the market, like Singapore, when the information is transparent enough and affordable enough for lenders, they will try to find that little space that they want to be in, that risk spectrum they want to operate in. And when you have enough of these lenders in place, that credit inclusion will be well built.

Brendan Le Grange 26:31

Marco, thank you so much. It's been an absolute pleasure having you on the show and more. So getting a chance to catch up again, if anyone listening is operating in Southeast Asia or in Thailand, maybe even or just wants to learn more about what you're doing in the region and some of those projects, research a little bit more about those scores that you've spoken about. Where's the best first place for them to go to find out more?

Marco Chu 26:58

LinkedIn would be a very good start because it's way on everyone's fingertips. I mean, Brendan always have my email whenever so, please feel free

Brendan Le Grange 27:08

And Khun Phadet, Likewise, it's been a pleasure catching up with you. If anybody would like to learn more about NCB or to strike up a conversation with you, where should they go for that first point of contact?

Phadet Charoensivakorn 27:22

Yeah, we normally do the NCB insights but unfortunately we are not public with that, we want to keep it in the within the NCB premise, but anyway we we welcome for any investor or any listener that they want to to listen more about what we are doing what we are tracking because think that we are tracking now, we foresee that customer targets has been changed right now, the good payment is not enough because the especially we are the emerging market. We saw a lot of new open accounts is coming from the Z generation and also the Y generation. Right. Those are the customer targets. They easy to get trapped. But if you're interested to listen more about this, you can drop me an email at phadet@ncb.co.th. Or you can ask Brendan.

Brendan Le Grange 28:17

and thank you all for listening. If you haven't done so already, like share and subscribe to the show. How to Lend Money to Strangers is written, hosted and edited by myself Brendan Le Grange. The Show Music is by Iam_wake and you can find show notes written transcripts more in depth articles and details on how to book me for speaking engagements at www.HowtoLendMoneytoStrangers.show.

I'll see you again next Thursday.