Home loans for lower-priced properties remain difficult to obtain
Competition in interest rates intensifies as Thai banks shift their focus towards lending to high-end markets
In today’s uncertain economic atmosphere, banks are understandably being more cautious about extending retail loans, particularly home loans. They are noticeably stricter when it comes to home loan approvals, especially for those purchasing houses priced below 5 million baht. This reduction in loan approvals stems from a strategy adjustment to mitigate risks, mainly concerns regarding the quality of debtors or NPLs, and the deteriorating quality of borrowers.
“We see that some groups, especially those with lower income, may find it challenging to access loans, with many of them primarily residing in state-owned apartments, which are already being taken care of and supported by state banks," noted Atchana Lamsam, senior director of the Financial Institution Model Inspection and Analysis Department at Bank of Thailand.
Ekkasit Phruthipalakorn, head of Product Management for Small Business at CIMB Thai Bank, said that CIMB Thai Bank is focusing on adjusting its lending strategy to better align with the economic situation and reduce the risk associated with lending.
"We've also noticed that some individuals who could previously afford houses priced between 3-5 million baht are now facing difficulties in debt repayment. Therefore, we are paying more attention to these groups. Consequently, individuals looking to purchase houses priced between 3-5 million baht and those above 5 million baht are receiving more focus from the bank," Ekkasit said.
However, as banks increasingly compete in lending to the higher-income group, competition in interest rates has intensified. This can be observed from the fact that during the first three years, initial home loan interest rate repayment remained below or around 3%, even as the Monetary Policy Committee (MPC) consistently raised interest rates.
Additionally, banks' strategies have shifted towards focusing more on the mortgage refinancing group due to the prolonged economic slowdown. Some borrowers in this segment require flexibility to manage their finances for livelihood and business purposes. Therefore, it is expected that mortgage refinancing this year will grow by approximately 15-20% compared to the previous year.
For CIMB Thai Bank, the chances of missing the target for new home loans this year are relatively high. Previously, the target for loan growth this year was set at no less than 20%, but due to caution and decisions to postpone home purchases, influenced by increasing interest costs and the ongoing sluggish Thai economy, some borrowers have opted to delay their home purchases.
"Banks have adjusted their lending strategies accordingly, with many banks focusing more on the group buying houses priced above 3-5 million baht, leading to intense competition in interest rates. This and other factors suggest that home loans will undershoot this year's target."
Aphinant Klewpatinond, CEO of Kiatnakin Phatra Bank (KKP), acknowledged that the shift towards competing in the group of homes priced above 5 million baht has led to intense competition in interest rates, especially in the realm of floating interest rates. However, there is no competition in fixed interest rates during the initial promotional period. Therefore, even though the interest rate spread may not be significant, the banks are not facing losses, allowing them to remain competitive.
Kris Chantanotoke, CEO of Siam Commercial Bank (SCB), noted that under the heightened caution in lending, the bank has to focus on groups that still have potential. Specifically, home loans priced above 5 million baht remain a primary focus for the bank. If prices are below this level, the bank maintains strict criteria. Therefore, the bank expects loan growth this year to be only around 1-2%, accompanied by assisting vulnerable customer groups in achieving a soft landing to prevent adverse impacts on the overall economy.
