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GHB latest to offer rate cuts in economy push

May 16. 2017
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By   THE NATION 

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GOVERNMENT Housing Bank (GHB) plans to offer cheaper home loans for middle-income earners, chiming in with moves by the major commercial banks to heed a government call for reduced lending rates for small and medium-sized enterprises (SMEs) and retail borrowers in a bid to boost the economy.

But some experts say the rate cuts will do little to stimulate the economy.

Chatchai Sirilai, president of the GHB, said yesterday that bank was considering offering a Bt10 billion home loan package with a fixed interest rate of around 2 per cent for the first three years. The plan awaits approval from the bank’s board on Friday. 

Under the proposed package, new clients could borrow at about 0.75 per cent cheaper than under loans at the current fixed rate of 3.4 per cent a year, he said. Eligible borrowers must meet conditions set by the bank. An applicant’s family income must not exceed Bt45,000 a month, for a loan of up to Bt 2 million. 

Chatchai said the bank would not cut mortgage rate across the board; instead, it would support select group as the bank’s mortgage rate is already the lowest in the market. 

Most of the bank’s clients are low and middle- income earners, with the bank’s average loan at Bt1.5 million. Such loans account for 80 per cent of the portfolio. The lending target this year is Bt178 billion, up from Bt168 billion last year. 

 GHB yesterday also launched an application, Home for All, which is designed to gather consumer information and provide better services. 

The GHB move comes after four major banks: Bangkok Bank, Kasikornbank, Siam Commercial bank and Krung Thai Bank announced rate cuts of between 0.25 and 0.5 per cent to support SMEs and mortgage borrowers. These banks cut rates in response to an appeal by Finance Minister Apisak Tantivorawong, who last week called for rate cuts to help SMEs. Smaller businesses typically pay interest rates of 6- 7 per cent compared with 1-2 per cent paid by large firms. The four banks, in announcing the cuts, also said they wanted to boost economy.

 

Limited impact expected

Pipat Luengnaruemitchai, an assistant managing director at Phatra Securities, said the rate cuts may ease some of the repayments burden for SMEs and mortgage borrowers but they would not have much impact on consumer spending or the economy as a whole.

Banks are facing a rise in non-performing loans (NPLs), due partly to slower growth in the economy. The central bank reported that loan quality had been deteriorated in the first quarter of this year.

Pipat said some loans may not turn into bad debts because borrowers could would have some cost savings as a result of the reduced rates. But rate cuts by the commercial banks are unlikely lead to new investment as most private companies are struggling to survive, said Pipat. 

Krisada Chinavicharana,director-general at the Fiscal Policy Office, said rate cuts would not have a significant impact on the economy. The effect is not same as the government putting new money into the economy, he said. 

While Tanit Sorat, president of the V-Serve Group, said that many SMEs could not even access bank loans.

Private investment contracted by 1.1 per cent in the first quarter of this year, largely because of excessive production capacity, according to the quarterly economic report released by the National Economic and Social Development Board on Monday. 

 

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