KBank confident of mortgage growth despite curbs

Kasikornbank (KBank), the country’s thirdlargest lender by assets, expects to reach its mortgage growth target of 5% this year, even with the Bank of Thailand’s recent macro-prudential policy to cool down the mortgage market.

The central bank’s new requirements for mortgages should have a limited impact on the bank’s housing loan business because borrowers taking out mortgages worth 3-7 million baht for first homes are KBank’s focus, said president Kattiya Indaravijaya.

Mortgages for homes priced above 10 million baht represent up to 20% of the housing loan portfolio at KBank, whose mortgage approval ratio is 50-60% of applications.

“We focus on lending for first-home purchases rather than second homes to prevent requirements based on risk weight from eating up the bank’s capital,” Ms Kattiya said.

The central bank uses risk weight guidelines to control mortgage lending. The risk weight assigned to mortgage loans is only 35% if the loan-to-value ratio (LTV) is less than 95% for low-rise residential property units, 90% for high-rise units and 80% for housing units priced above 10 million baht.

If the LTV ratio exceeds these guidelines, the risk weight will increase to 75%. Top-up loans are not included in the calculation of the LTV ratio at present.

The central bank will require homebuyers to make a down payment of at least 20% of home value for new mortgages worth 10 million baht and higher, as well as for second and subsequent homes, in an effort to curb mortgage and property risks and improve housing loan quality.

Lenders will also be required to limit mortgages together with top-up mortgages such as personal loans and loans for mortgage-reducing term assurances at 80% of home value for second homes and those worth at least 10 million baht, and at 100% for first homes valued below 10 million.

The central bank will hold a public hearing on the new standards today and is set to announce the macro-prudential measure in November. The requirement is expected to be implemented from Jan 1 next year.

Ms Kattiya said the bank’s rising nonperforming mortgage loans (NPLs) are largely from small and medium-sized enterprise (SME) customers, while the white-collar segment’s debt-servicing ability remains sound.

The bank then will tighten housing loan approvals for the self-employed and SME segment next year. However, it will maintain its 2019 housing loan growth at 4-5%.

KBank aims for lending growth of 6.5-7% next year, similar to this year’s.

Corporate and retail loans are expected to grow by 6-7% each, while SME business will expand in the range of 3-4% next year, Ms Kattiya said.

Retail banking business will be the main driver for the bank’s loan expansion next year amid the economic recovery.

KBank will adopt a wait-and-see approach for wholesale loans after the government’s infrastructure project investment delays.

Meanwhile, the bank will pay attention mainly to asset quality of the SME segment.

KBank expects to achieve its 2018 loan growth target of 6-7%. Projected NPLs will decline marginally to 3.29% by the end of the year from 3.3%-3.4% now.

The bank expects to set credit cost up 185 basis points next year, Ms Kattiya said.