ASP: BoT mortgage rules to curb home loan growth

T he

Bank of Thailand’s new mortgage lending requirements, expected to take effect from the beginning of next year, will tame the growth pace of housing loans, particularly those extended by mid-scale and small mortgage lenders, according to Asia Plus Securities (ASP).

But the measures will not deal a significant blow to commercial banks’ capital base, as they will apply only to housing loans extended after the requirement is enforced, the brokerage house said.

TMB Bank and Bank of Ayudhya (BAY) are expected to see a slowdown in new home loans, ASP said in a research note, adding that since 2016 both banks have been more aggressive than their industry peers in extending housing loans.

Mortgages accounted for a sizeable share of TMB’s and BAY’s loan portfolios — 22.4% and 14.1%, respectively — at the end of June.

The central bank earlier this week announced that mortgage lenders would be required to cap their loan-to-value (LTV) ratio at 80%, which means homebuyers will have to make a down payment of at least 20% on new homes worth 10 million baht and higher, as well as for second homes.

The central bank will also require lenders to limit mortgages and top-up mortgages such as personal loans and loans for mortgage-reducing term assurances (MRTA) at 80% of home value for second homes and those worth at least 10 million baht, and 100% for first homes valued below 10 million.

The measures are undergoing a public hearing process, which runs until Oct 22.

The move is aimed at curbing mortgage and property risks and improving housing loan quality after the central bank found that almost half of new mortgages in the second quarter had an LTV ratio of more than 90% and those with a loan-to-income (LTI) ratio above five times made up nearly one-third.

A growing proportion of mortgage loans extended to borrowers for second homes has also been spotted, with the data suggesting a deterioration of credit standards.

ASP said lenders need to set aside more capital reserves because the central bank’s requirement for including top-up mortgage LTV calculations will compel banks to make the risk-weighted capital requirement 100% if they lend above the 80% threshold.

Financial institutions offer mortgages with LTVs that do not exceed the threshold, with the risk-weighted capital requirement at 35%.

The brokerage firm, however, said the new lending requirement will not take a severe toll on banks’ capital base, as it will apply only to new mortgages and commercial banks whose capital adequacy ratio (CAR) is far above the central bank’s minimum requirement of 8.5% of risk-weighted assets.

“Banks, especially large ones, say they will not ramp up extending new [home] loans as in the past, so we believe that mortgage quality will improve,” ASP said.