Thailand: BoT tamps down on mortgage lending

  • The Bank of Thailand has set out measures to rein in mortgage lending after it found widespread search-for-yield behaviour in the residential market, with some banks extending housing loans exceeding the central bank’s guidance.
  • The prolonged low-interest-rate environment led to search-for-yield behaviour in the property market, artificial demand in mortgage lending and underpricing of risks, though the country’s overall financial market remains sound, central bank governor Veerathai Santiprabhob said at Fitch Ratings’ annual conference.
  • It has already used a micro-prudential measure to inform financial institutions to tighten mortgage loan approvals as good risk management, summoning all related parties, including financial institutions and property developers, to discuss the issue.
  • Mortgage NPLs rose to 3.39% in 2Q18, up from 3.38% in 1Q18, according to central bank data.
  • The central bank’s guidance is that financial institutions should not provide mortgages based on a loan-to-value ratio (LTV) of more than 95% for low-rise residential projects and 90% for high-rise ones.
  • A banking source who requested anonymity said the central bank discussed with mortgage lenders at the recent meeting several tentative measures, including a LTV requirement for second and third homes, as well as higher down payments for the upper residential segment. Limiting credit lines for mortgage refinancing and demanding higher debt servicing ratios for some homebuyer segments were also discussed, the source said.
  • Separately, Mr Veerathai said monetary policy normalisation by central banks worldwide, especially the major economies, will continue the next few years, and market volatility will be prevalent.
  • Thailand’s current account surplus, expected at US$35 billion this year or 7% of GDP, is a cushion for global uncertainties, he said. The central bank and other policymakers are monitoring fund inflows, Mr Veerathai said. The impact from the US-China trade dispute is still limited, he said, but the magnitude is expected to increase next year.
  • Robust exports should lead to higher domestic consumption and private investment. The central bank will continue to build up the country’s economic immunity to maintain positive momentum, Mr Veerathai said.

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