Author Topic: Consumer Loans Surge Across Asia  (Read 13841 times)

Fred

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Consumer Loans Surge Across Asia
« on: April 22, 2013, 03:58:39 AM »
A Wall-Street Journal article from yesterday: http://online.wsj.com/article/SB10001424127887323551004578436600864277108.html

Banks From Around the World Target Middle Class With Financing for Autos, Home Appliances
...

Interest rates can range from 15% for secured auto loans to as much as 40% for unsecured loans, appliances and electronics, driven by high demand for loans and little or no credit history for the borrowers. Loans are typically paid back over six months to five years.


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40% interest?

Citibank is already on the ground; hopefully, P2P operators/investors are not too far behind.

One big challenge: not sure how complete & accurate their credit reporting agencies are.
 

rawraw

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Re: Consumer Loans Surge Across Asia
« Reply #1 on: April 22, 2013, 07:14:22 AM »
There is a reason those rates exist.

Be Fearful When Others Are Greedy and Greedy When Others Are Fearful

Fred

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Re: Consumer Loans Surge Across Asia
« Reply #2 on: April 23, 2013, 12:47:19 PM »
There is a reason those rates exist.

There are reasons for all asset classes to exist.  Investors just need to select and allocate.

The more asset classes you have on the efficient frontiers, the more options investors have to analyze and invest.

rawraw

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Re: Consumer Loans Surge Across Asia
« Reply #3 on: April 23, 2013, 04:40:43 PM »
You seem to use lots of finance buzz words, but not quite sure what you're actually saying.


Fred

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Re: Consumer Loans Surge Across Asia
« Reply #4 on: April 23, 2013, 04:49:56 PM »
I have graduate degrees in Finance and Engineering.

Based on your previous comments in this Forum, I assume you know efficient frontier from modern portfolio theory introduced by Harry Markowitz?

berniemadeoff

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Re: Consumer Loans Surge Across Asia
« Reply #5 on: April 23, 2013, 08:46:52 PM »
These credit card companies are not looking to capture beta risk on some efficient frontier with these 40% APR cards.  It's probably more along the lines of predatory lending and usury.

Systematic risk is a bore.  ;D
« Last Edit: April 23, 2013, 08:49:47 PM by berniemadeoff »

ee1x

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Re: Consumer Loans Surge Across Asia
« Reply #6 on: April 24, 2013, 02:12:45 PM »
I have graduate degrees in Finance and Engineering.

Based on your previous comments in this Forum, I assume you know efficient frontier from modern portfolio theory introduced by Harry Markowitz?

You mean the one he developed about 60 years ago? MPT is hardly useful for anything these days aside from maybe an introductory finance course. And it's certainly not useful for saying anything about what is a very new and unproven subclass of the credit markets. Would you really expect MPT's assumptions to hold up when you have borrowers with little to no credit history? MPT exists in a very idealized world where you can forecast risk to some reasonable degree of precision and I have to believe that such a forecast isn't exactly possible here.
Investing since March 2012

Fred

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Re: Consumer Loans Surge Across Asia
« Reply #7 on: April 24, 2013, 03:57:30 PM »
People still believe in the old adage "not putting all of your eggs in one basket." 

Despite its shortcomings, MPT quantifies the benefits of diversification, also known as not putting all of your eggs in one basket.

berniemadeoff

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Re: Consumer Loans Surge Across Asia
« Reply #8 on: April 24, 2013, 11:45:58 PM »
I love covariance matrices.

ee1x

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Re: Consumer Loans Surge Across Asia
« Reply #9 on: April 25, 2013, 01:58:18 PM »
People still believe in the old adage "not putting all of your eggs in one basket." 

Despite its shortcomings, MPT quantifies the benefits of diversification, also known as not putting all of your eggs in one basket.

You don't exactly need MPT in order to realize that having multiple uncorrelated assets in your portfolio is a good way to reduce the risk of catastrophic loss. It still doesn't do jack for making any useful predictions or statements about the topic at hand, which is the fact that loans are going for 40% interest in Asia. When you have an interest rate that high, you see more and more return variance and far less predictability of risk. It's a huge gamble. Plain and simple. No Markowitz required.

I love covariance matrices.

Covariance matrices are still fun, though.  8)
Investing since March 2012

rawraw

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Re: Consumer Loans Surge Across Asia
« Reply #10 on: April 25, 2013, 04:38:51 PM »
Yeah my thoughts are aligned with ee1x. I don't understand how it relates. For example, Should we diversify across assets experiencing bubbles? Of course not. The theory tells you nothing about suitability of investments. I think it assumes all assets are  priced at fair value.



Fred

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Re: Consumer Loans Surge Across Asia
« Reply #11 on: April 25, 2013, 07:00:56 PM »
If you realize that some of these countries have double-digit inflation, a 40% interest is pretty much about 25% in the US.

I am fine if you see things differently about Asia.  However, I also see Citigroup, Crédit Agricole, Mizuho Financial, etc., are taking a keen interest in this opportunity.

"In China, Citigroup Inc., which became the first Western bank to issue its own credit cards there last year, is seeing one of its fastest growth rates in credit-card accounts in the world, a bank spokesman said."

"France's Crédit Agricole SA plans to expand its auto loans in the country by more than one-third this year ..."


I happen to be in Asia during the 2007 US sub-prime crisis.  I can tell you that the world is more financially connected that most people think.

rawraw

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Re: Consumer Loans Surge Across Asia
« Reply #12 on: April 26, 2013, 12:43:55 PM »
I'm not saying it's a bad per se. Just saying there is a reason that needs to be understood beforehand. Banks in Africa have similar high returns. But to compare them to America, you couldn't compare banks but rather pay day lenders.

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ee1x

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Re: Consumer Loans Surge Across Asia
« Reply #13 on: April 26, 2013, 04:12:43 PM »
If you realize that some of these countries have double-digit inflation, a 40% interest is pretty much about 25% in the US.

Double-digit inflation => instability => very high risk => no thanks.

Not quite the same as 25% in the US.
Investing since March 2012

Fred

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Re: Consumer Loans Surge Across Asia
« Reply #14 on: April 26, 2013, 11:23:22 PM »
As I said before:

I am fine if you see things differently about Asia.  However, I also see Citigroup, Crédit Agricole, Mizuho Financial, etc., are taking a keen interest in this opportunity.