Collateral for Home Loan

[KHONDAHM]

Just kicking around an idea and wondering if it may have legs.

Would a Thai bank accept physical gold as collateral for a home loan? Is it possible to walk into the bank with 1 million baht in gold bars, deposit them in a box (or whatever) as collateral, take out a loan for 1 million baht cash, pay off the loan until that physical gold appreciates to (humor me here - just an example) 3 million, walk back into the bank, cash out enough gold to pay off the loan balance, and walk out the door with the other 2+ million in physical gold?

I will run it past the wife since she has to go there tomorrow, but I know she is terrible at explaining things beyond the ordinary; and bank staff (especially via telephone) is often clueless about things beyond the ordinary.

Perhaps someone can inquire about it and post a report? Thanks in advance to anyone who can assist.

[LoveDaBlues]

The bank will never go for it for obvious reasons.

[KHONDAHM]

Banks do it every day. Collateral is collateral. Be it land, stocks, bonds, commercial paper, inventory, buildings, production assets, accounts receivables, or (yes) gold - if it has value and can be converted, a loan can be made against it.

I know it is possible in the US. I am wondering if it is also possible to do it in Thailand since the bank would also be in possession of the gold bars (collateral) at the time the loan is made. One could argue that gold is THE best collateral there is. Borrowing fiat paper against a gold is a no-brainer, but TIT.

Thoughtful responses appreciated.

[LoveDaBlues]

So, you're telling me you've walked into a US Bank; given them gold (to hold) and walked out with a loan equal to the current value of the gold?

[KHONDAHM]

Technically, it's really not a home loan since the collateral is gold and not (necessarily) the home.

That said, if the bank gets both the gold (let's say it is 3m in bars) and home (3m in value) as collateral, it is a real no-brainier, to approve a 3m cash loan, but TIT...

[KHONDAHM]

So, you're telling me you've walked into a US Bank; given them gold (to hold) and walked out with a loan equal to the current value of the gold?

Hell, yeah I certainly could - just as easily as if I pledged land, building, or equities (all at market value) as the collateral. Intangible collateral such as receivables or certain classes of equities may be subject to discounting, but pretty much anything else is good as collateral at fair market value.

[deankham]

Interesting question

I'm not aware of any personel bank account in LOS that let's you do this. (but I've not actively checked.) You would have a better chance using a Commercial bank and securing the money against a loan on business premises.

Of course it would have to be worthwile doing it the way you describe. i.e will gold apprieciate more than the value of the loan interest and repayments and any extra bank charges??

This type of thing is fairly common in Hong Kong. My HK bank account has a seperate account for gold. However this is only for gold certificates and not physical gold. I could use the value of this gold as security on a loan.

Only wish I'd put all my money into gold many years ago
...Actually only wish I'd HAD any money to put into gold years ago!

[KHONDAHM]

I am contemplating this to kill a few birds with one stone:

1. I hate credit and don't need it, but would be willing to go for it since I'm technically borrowing my own money (gold) that I give to the bank. The bank is simply collecting fees and interest for me borrowing my own money.
2. The gold is "kept" for me on deposit (Free without having to pay for a box, perhaps? Would be nice to know). So, that's one less physical security worry.
3. I can retire the loan immediately anytime in the future when gold is worth more than it is today. Perhaps much, much more and thus getting a custom built home, including loan interest and fees, for "free".
4. Additional future financial security for my family. We would have one liability of (example) the 3m less principle payments, and two assets - the gold on deposit at market (3m+) and the house at market (3m+). Over the life of the loan, the liability remains static while the other two assets appreciate.

Expecting a Thai banker to realize that the bank is simply collecting fees and interest for me borrowing my own money and taking on essentially zero risk may be both funny and frustrating. "Sorry, but we cannot charge you for using your own money. Yes, that is what ATM fees are, but that is our policy." - lol

The rationale is sound - just wondering if it is possible to do in Thailand. Is anyone on the ground able to check into it for me? Thanks!

Cheers!

[Texpat]

Remember, Thai banks charge you to make deposits into your own account.

This concept will not go over well, in my opinion. Millions of Thais take loans out using their land deeds as collateral. There's one very importance difference between them and you, however.

If you were lucky enough to find a bank that would go for it, they'll certainly want to COMPLETELY ELIMINATE their risk. They'll value the collateral today, any increase over the period of the loan, is theirs. Any decrease in the value must be covered by you.

Why not just sell the gold?

[pompui]

Remember, Thai banks charge you to make deposits into your own account.

This concept will not go over well, in my opinion. Millions of Thais take loans out using their land deeds as collateral. There's one very importance difference between them and you, however.

If you were lucky enough to find a bank that would go for it, they'll certainly want to COMPLETELY ELIMINATE their risk. They'll value the collateral today, any increase over the period of the loan, is theirs. Any decrease in the value must be covered by you.

Why not just sell the gold?

Good to see the value of Gold went down 5% the other day because the US Dollar has strengthened due to better than expected figures for the jobless total. A big drop just because of this though so deposit of Gold with a Bank as collateral should be 30% value higher than the loan:-k

[JimboPSM]

You may well run into problems with the Anti Money Laundering (AML) regulations if you try to use gold as collateral at the banks.

Although I don’t know the full extent and degree that financial institutions enforce AML measures in Thailand I do know that they do occur – although I have no experience of gold per se, I have had TT payments to Thailand delayed in Thailand (and also before they left the UK) for AML checks - the delay in each case was only minor but AML checks certainly do happen.

There may also be a requirement to provide suitable documentary evidence relating to its ownership and also that it is free of any other charges to enable it to be used as collateral.

While cash is definitely up at the top of the scale for inviting AML checks I suspect that gold is not all that far behind.

Sorry if this seems a bit pessimistic, but it is a sad fact of life that AML and Anti Terrorism rules are becoming more and more intrusive in the private affairs of people all round the world.

[KHONDAHM]

Well, the un-official official word according to my wife is that they will not accept physical gold as collateral. She says she checked with 2 banks and was told the same. BUT in each case, she was told they only accept LAND as collateral for a loan. To me, that sort of answer smells of retail level bank employees sticking to the script rather than inquire higher up to get a real definitive answer for an unusual question.

In any event, I guess I will have to follow-up when I return to be sure that a higher-up has reviewed the inquiry, thought about it, and gives me a good answer along with a rationale. At that point, it is what it is, and I will be able to either close the book on the idea or pursue it.

[pompui]

Well, the un-official official word according to my wife is that they will not accept physical gold as collateral. She says she checked with 2 banks and was told the same. BUT in each case, she was told they only accept LAND as collateral for a loan. To me, that sort of answer smells of retail level bank employees sticking to the script

And there was me thinking that why would a Bank accept land without a house built on it,so just lovely farmland can be used
Good luck.

Jimbo had a good answer also,maybe ok for Gold for a loan in Western countries but here,since Gold is cashable so easily,no wonder they seem a bit bemused why someone would not cash it in and pay by cash.
Must admit.if I was a criminal,a good way to convert dirty money into clean money ie Gold here.Gold shops do not ask where I would have got all that money from.

Seems Gold is more volatile on the markets if the US Dollar strengthens,as said before,went down 5% recently yet the Yen and Euro lost value to the Dollar by less,3% and just over 1% respectively.

[KHONDAHM]

if I was a criminal,a good way to convert dirty money into clean money ie Gold here.Gold shops do not ask where I would have got all that money from.

Good luck with that. Hope it works out for ya.

Seems Gold is more volatile on the markets if the US Dollar strengthens,as said before,went down 5% recently yet the Yen and Euro lost value to the Dollar by less,3% and just over 1% respectively.

That is a known and long-standing inverse relationship. Gold does not go up - the dollar goes down. Gold is the constant store of value, and has been for millenia.

Most people holding physical gold are not concerned with short-term fluctuations - that's paper gold's realm. If retail paper gold holders realized how leveraged that paper is to actual inventory held in reserve at the Comex (or elsewhere), they'd better hope there is never a rush to take delivery of the physical...but there I go...about to go off on a tangent again.

Just my song-baht.

Cheers!

[KHONDAHM]

Taking Delivery of Gold

By Tony Klancic ISSUE 711 | November 2008

"Note that the current leverage ratio for gold is 10:1. The leverage ratio of these and all other futures contracts can be greater or smaller than this ratio, depending on the initial margin requirement and the full contract value of the instrument being traded."

http://www.lind-waldock.com/education/e ... very.shtml

[pompui]

Good luck with your Gold enterprise Khondahm

Let us all know if the Bank(people higher up) ask or not for documentation about where the Gold has come from,that they ask or not if it is free of charges against it,and if they ask for its value at what level higher than the loan required.

[LoveDaBlues]

Let's see.....I work at a Thai bank. I give a guy a 1M baht loan when he brings in 1M baht worth of gold (today's value) for the bank to hold. Then.....the next day......the price of gold slips a bit. And, it continues to slide over the next month. When the guy misses his first loan payment I call him. He says, "Oh, I can't make the payments and I spent the 1M baht cash; but no problem for you you're holding collateral......... :-"

NO WAY will the Thai bank allow the borrower to be in a win/win situation. To think otherwise is pure folly; IMHO.

[KHONDAHM]

FYI, I have researched this (in the USA) already - Small banks where loan officers are empowered and comfortable with the customer would typically approve loans with gold as collateral of up to 70% of current market value. Some more, some less - totally subjective to the comfort level of the loan officer and his/her familiarity and experience with doing such loans.

Large banks do not normally accept gold as collateral because of the bureaucracy involved, robotic "not our policy" drone staff, purity evaluations, etc. Most street level loan officers are overly conservative and fearful of the unknown and that which is not in some policy book. They need to some CYA.

There are also niche companies such as http://www.cfccoinloans.com/ which offer instant limited term loans with gold as collateral.

Nothing wrong with inquiring if things are the same in Thailand.

Cheers!

[LoveDaBlues]

From the OP: Is it possible to walk into the bank with 1 million baht in gold bars, deposit them in a box (or whatever) as collateral, take out a loan for 1 million baht cash

Now the goal post are moving: Small banks where loan officers are empowered and comfortable with the customer would typically approve loans with gold as collateral of up to 70% of current market value

My initial answer to the OP was spot on. No bank will allow the customer an obvious win/win situation
as market conditions change. Nice try though! =D> Next.

Cheers!

[BKKSTAN]

I would think that the bank taking the gold as collateral,would have the right to liquidate it if the price dropped to challenge the balance owed.Once ''put up'' as collateral you would lose control of it other than to sell and retire the loan!