BOT’s new home-loan rules should improve banks’ asset quality: Moody’s
Moody’s believes the new mortgage-lending rules announced by the Bank of Thailand (BOT) are credit positive because they will help to reduce speculative buying and require banks to focus on borrowers with better credit quality.
The ratings firm expects the measures to improve the asset quality of banks’ newly originated mortgages, it said on Monday.
The BOT on October 4 announced measures to tighten credit underwriting standards in mortgage loans.
Under the new rules, the maximum loan-to-value (LTV) ratio will be restricted to 80 per cent on new mortgages for homes worth more than Bt10 million.
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.
Moody’s said that amid Thailand’s prolonged low interest-rate environment, property prices had been rising steadily.
According to the Bank for International Settlements, residential property prices in the Bangkok area have increased 49 per cent in the past 10 years.
Nevertheless, the increase in condominium prices has been sharper at about 78 per cent 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 share of high-LTV mortgages, or mortgages with LTV ratios of more than 90 per cent, increased to about 49 per cent of newly originated loans at the end of first-half of this year, from about 34 per cent at the end of 2013, while the median loan-to-income ratio rose to around 3.8x at the end of the first quarter, up from 2.7x during the same period.
For Thai banks, housing loans are the only type of consumer loans where the non-performing 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 per cent as of June from 2.4 per cent three years ago.
In addition, household leverage remained high in Thailand at 77 per cent of gross domestic product at the end of June, although the growth rate has slowed.
Mortgages are big business for Thai banks, accounting for 17 per cent of system-wide loans and about 50 per cent of total retail loans at the end of the first quarter, Moody’s said.
As such, the deterioration in the mortgage underwriting quality can have a significant effect for banks if 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, Moody’s added.
