Bank of China's Thai unit focuses on refinancing

In the past five years, the housing market and housing loans have grown a lot as several residential projects were introduced to buyers. For the first three years of their mortgage term, those buyers paid fixed interest rates, but these are floated after the fourth year, so BOC (Thai) thinks this is a good time to offering refinance programmes, said Phonpimol Pathomsak, senior vice president and head of the personal credit department.

She said home-owners could have many reasons to refinance their mortgages, such as wanting lower interest rates. Or they might require additional credit, while others might want to extend the repayment period.

BOC entered the home-loan market in Thailand in the fourth quarter of 2013, highlighting long-term low interest rates for new mortgages and refinancing. 

“As newcomers, we have to use pricing as a key strategy, and we are confident that our rates are more attractive than the [average in the] banking industry. The rate for refinancing throughout the contract at BOC (Thai) is 5 per cent, while the industry offers [an average of] 6.04 per cent. 

The rate for new housing loans at BOC (Thai) is 5 per cent as well, while the industry offers 6.2 per cent,” she said.

In the bank’s first year of operation, refinancing accounted for 30 per cent of its mortgage total. The bank also found that most borrowers were middle- to upper-income earners.

The fact that BOC (Thai) has few branches was not a barrier to acquiring mortgage clients as most applicants searched and compared mortgage rates. The bank has three branches, two of which are in Bangkok, allowing it to keep operating costs down and offer low rates to home-buyers. 

To attract refinance customers, the bank bears all expenses such as mortgage registration fees to clients who require credit lines of up to Bt5 million.

 

Pluses and minuses

“We want to expand the refinancing proportion of our lending to 40 per cent by the end of this year. 

However, new home loans remain the major proportion for us,” Phonpimol said.

There are pros and cons in the refinancing business. On the positive side, the bank can see the pattern of instalment payments, so it can screen out low-quality borrowers. A negative is the lower value of collateral.

The bank projects that its mortgage lending this year will grow by five times to more than Bt1 billion.

Margins from mortgages might be narrow for local banks but at BOC (Thai), margins are good compared with commercial loans, which it has been offering since entering Thailand a couple of decades ago.

BOC (Thai) has expanded its lending to retail customers in the past five years by offering credit cards and mortgages.