Small banks to focus on mortgage refinancing

Small banks have focused more on mortgage refinancing than on new housing loans amid high levels of household debt and intense competition in the new-mortgage segment.

Land and Houses Bank president Sasitorn Pongsathorn said its mortgage-approval rate had declined because the debt-service ratios of many applicants exceeded the bank’s requirements.

The ratio of debt to gross income of home-loan applicants at LH Bank must not be over 80 per cent. The high overall level of household debt in Thailand is having an impact on the bank even though its customer base is middle class.

Previously, LH Bank tapped buyers of detached houses who could afford prices of Bt5 million, but the average price of houses in its mortgage portfolio at present has dropped to Bt3 million after it began serving more mass-market clients who were condominium buyers.

The housing-loan portfolio at present is about Bt30 billion.

Sasitorn said a lot of condominium projects had been launched in the past three years, so buyers in this segment represented an opportunity for financial institutions.

Only 20 per cent of LH Bank’s new mortgages are granted to buyers of housing projects pre-financed by the bank. Those buyers are pre-approved by the bank, so it knows their background. But once home-buyers’ fixed repayment period matures, many shop around for lower interest rates, and LH Bank will try to tap them.

Tisco Bank is another small institution that believes refinancing as a niche marketing strategy is a good way for the bank to avoid the intense competition in the mass market. The bank is joining forces with the Secondary Mortgage Corporation to serve customers who want to reduce their financial burdens for the long term.

SMC offers a fixed repayment term of 10 years, a programme that is attractive for clients who want low financing costs while not having to pay a property-valuation fee. Loans are booked at Tisco Bank only 15 days before being transferred to SMC, so the bank helps screen applicants’ credit, thereby keeping SMC’s non-performing-loan rate down.

"Doing it this way does not affect the bank’s balance sheet, while the bank also gets fee income from SMC," said Yuttpong Sriwongjanya, Tisco’s assistant executive vice president and head of retail banking. Home loans do not generate high margins for banks because of the intense competition, while many buyers plan to refinance when the fixed interest rate for the first three years ends, he said.

CIMB Thai Bank executive vice president Adisorn Sermchaiwong said the bank might not reach its mortgage target of Bt18 billion this year if the economy remains stagnant and consumption gets weaker.

Its new mortgages in January and February were below target by Bt500 million per month. It booked loans of Bt1 billion in each of those two months, compared with its target of Bt1.5 billion per month. However, the slowdown has discouraged speculation while real demand for housing loans remains positive, Adisorn said.

In retail banking, housing loans are a key driver because they can bring the cross-selling of other products as well, he said.