Thai banks see modest rise in mortgage loans

In the first six months of this year, a modest increase in mortgage loans was recorded by banks as purchasing power of homebuyers took a hit due to rising interest rates.

Collectively, eight out of the ten SET-listed banks reported consolidated outstanding mortgages tallying 2.39 trillion baht as of June, marking a 1.04% rise from 2.37 trillion baht in December 2022.

Among the five largest lenders in the country, Siam Commercial Bank (SCB) registered the most substantial growth rate of mortgage loan products at 2.69%. In stark contrast, the Bank of Ayudhya, marketed under the name Krungsri, reported a contraction of its mortgage loan products by 2.73% in the same timeframe.

On the other hand, Land and Houses Bank (LH Bank) notched the highest mortgage loan growth rate during this particular period at 16.7%, with Kiatnakin Phatra Bank (KKP) coming in second at 7.12%.

Banks usually assign a floating rate to mortgage loans during the fourth year of loan maturity, which means borrowers of these loan products could potentially be grappling with escalating interest rates.

Citing the contraction of the bank’s mortgage loans in the first half of this year, Krungsri’s executive vice president Nathapol Luepromchai attributed it to a drop in affordability for potential homebuyers who have been impacted by a culmination of interest rate hikes and spiralling construction costs.

He predicted the economic outlook in the second half of the year would primarily depend on the market environment. Expectations are rife that the Bank of Thailand will likely increase its policy rate in line with policy normalisation.

Moreover, political uncertainties could potentially suppress the confidence of consumers and would-be homebuyers in the second half of this year. Under such circumstances, the overall housing loan market could witness marginal growth, or even a contraction, depending on the evolving market situation.

Owing to these uncertainties, potential homebuyers may prefer not to commit to lengthy housing loans, postponing any home purchase decisions until next year.

In the upcoming second half of the year, Krungsri Bank will primarily focus on maintaining asset quality rather than aiming for loan growth.

Nathapol said that if high inflation, interest rate hikes and a delay in the formation of the new government culminate into the worst-case scenario, the overall market’s mortgage loan growth could contract by 4-5% this year.

“Krungsri does not want to grow housing loans against the market.”

However, Nathapol conceded that the repercussion on the real estate sector would be lesser compared to the mortgage loan market, given that demand from upper-income homebuyers – particularly those in the high-net-worth segment – remains robust.

He indicated that the demand for residential projects priced between 50-100 million baht per unit continues to be positive. This segment typically doesn’t necessitate the services of a bank’s mortgage loan.

As part of their strategy for the second half of the year, Krungsri will concentrate on home refinancing loans or a “Home for Cash” service over new mortgage loans.

This mortgage loan-related product primarily targets small entrepreneurs given that they are less sensitive to increased interest rates compared to other homebuyer categories.

Furthermore, these additional credit lines would provide support for entrepreneurs eyeing business expansion and income generation amidst the prevalent economic uncertainty, reported Bangkok Post.