On 4 October, the Bank of Thailand (BOT, Baa1) announced measures to tighten credit underwriting standards in mortgage loans.
Under the new rules, the maximum loan-to-value (LTV) ratio will be restricted at 80% on new mortgages for homes worth more than 10 million baht.
The same LTV restrictions will apply for the purchase of a second home irrespective of the property value. Banks will also be prohibited from providing advances that exceed the value of a property.
New measures to target speculative buying
The new mortgage-lending rules are credit positive because they will help to reduce speculative buying and require banks to focus on borrowers with better credit quality.
We expect the measures to improve the asset qualilty of banks’ newly originated mortgage loans. Amid Thailand’s prolonged low interest rate environment, property prices have been rising steadily.
A 78% increase in condominium prices
According to the Bank for International Settlements, residential property prices in the Bangkok area have increased 49% in the past 10 years; nevertheless, the increase in condominium prices has been sharper at about 78% during the same period.
In addition, banks’ credit underwriting standards for mortgage loans have deteriorated because a greater proportion of newly originated mortgage loans have higher LTV and lower debt servicing capacity.
The housing NPL ratio rose to 3.4%
The share of high-LTV mortgages, or mortgages with LTV ratios of more than 90%, increased to about 49% of newly originated loans at the end of first-half 2018, from about 34% at the end of 2013, while the median loan-to-income (LTI) ratio rose to around 3.8x at the end of the first-quarter 2018, up from 2.7x during the same period (Exhibit 1).
For Thai banks, housing loans are the only type of consumer loans where the nonperforming loan (NPL) ratio has been increasing: for other retail segments, NPLs have remained stable or improved. The housing NPL ratio rose steadily to 3.4% as of June 2018 from 2.4% three years ago (Exhibit 2).
In addition, household leverage remained high in Thailand at 77% of GDP at the end of June 2018, although the growth rate has slowed.
Mortgages are a big business for Thai banks, accounting for 17% of systemwide loans and about 50% of total retail loans at the end of first-quarter 2018.
As such, the deterioration in the mortgage underwriting quality can have significant effect for banks if the property prices decline substantially.
The macro-prudential guidelines from the BOT follow similar guidelines issued by other countries in the region in the past few years (Exhibit 3).
Source : Moody’s Investors Service comment: Banking – Thailand: Bank of Thailand’s new rules to tighten mortgage lending are credit positive.
Thailand’s economic growth expected to return to 2019 levels in mid-2023
Although the economy would recover next year, the recovery is still substantially below potential level resulting in a large output loss and could affect Thailand’s potential economic growth in the future with the economy expected to return to 2019 levels in mid-2023.
The Siam Commercial Bank (SCB), one of Thailand’s largest commercial banks, said in its latest economic outlook report that the country’s economy may wait until the second semester of 2023 to return to 2019 growth levels.(more…)
S&P maintains Thailand’s credit rating at BBB+ with stable outlook
Standard and Poor’s (S&P) maintained Thailand’s credit rating at BBB+ . The global rating firm expects the country’s gross domestic product (GDP) to grow at 1.1% this year, with a more optimistic growth at 3.6% per year from 2022 to 2024.
Standard and Poor’s (S&P) maintained Thailand’s credit rating at BBB+ . The global rating firm expects the country’s gross domestic product (GDP) to grow at 1.1% this year, with a more optimistic growth at 3.6% per year from 2022 to 2024.(more…)
Can border reopening revive tourism in South-East Asia?
In Thailand, where pre-pandemic tourism accounted for 11-12% of GDP, the country lost an estimated $50bn last year as Covid-19...
Thailand dropped from UK’s tough covid-19 travel ‘red list’
Earlier, Thailand was listed among countries with high infection levels that were put on a ‘red list’, requiring arrivals to...
The ASEAN-Russia Trade and Investment Cooperation Work Program
ASEAN and Russia recently agreed to enhance and widen economic cooperation at the 10th ASEAN Economic Ministers (AEM)-Russia Consultations held...
Flexible Workspace Startup Worklounge Debuts with 20+ Luxury Member Lounges in Thailand
Worklounge launches a premium membership granting remote professionals and executives access to exclusive hotel lounges across Thailand. Their platform is...
5 insights to guide ASEAN’s digital generation in a post-pandemic world
We surveyed 86,000 people from six ASEAN countries about their views for a post-pandemic world. The ASEAN Digital Generation Report...