Thai banks brace for blow from tighter mortgage curbs

The central bank imposed an 80% loan-to-value limit on mortgages.

Banks in Thailand are bracing for an imminent slowdown in a major part of their business from stringent mortgage rules after the central bank stepped in to cool the heated housing market and curb speculative activity.

The central bank imposed a rule effective January 1, 2019 requiring residents buying a second home to make a down payment of at least 20% of the value in order to qualify for a mortgage exceeding $300,000 (THB10m). Banks will also be banned from providing advances that exceed the value of a property.

Also read: APAC banks grapple with growing property risks

"We urged some banks to keep good risk management for both housing loan approvals and debt collection," Bank of Thailand governor Veerathai Santiprabhob said in an earlier statement as he urged banks to rein in mortgages. "The risk appetite of some banks has increased as they wanted to grab a larger market share in the loan segment.”

Mortgages compose a major business for Thai banks as they represent 17% of systemwide loans and about 50% of total retail loans as of Q1, data from Asian Nikkei Review show.

"The new mortgage-lending rules are credit-positive because they will help to reduce speculative buying and require banks to focus on borrowers with better credit quality," Moody's said in a statement.