Bad housing loans are expected to peak this quarter as lenders' tightened scrutiny and debt restructuring keep a lid on deteriorating assets, says the Housing Finance Association.
"Housing NPLs continued to increase due to weak debt repayment ability caused by the high percentage of household debt, but soured loans are expected to peak in the third quarter of this year," said Alongkot Boonmasuk, secretary-general of the Housing Finance Association.
Soured mortgages continued to increase in the second quarter after a sharp rise in the first quarter, Mr Alongkot said without revealing figures.
According to the Bank of Thailand's latest data, bad housing loans held by commercial banks climbed to 3.23% of outstanding mortgages at the end of March from 2.93% at the end of 2016.
Some borrowers failed to service their debt after the conclusion of a low-interest-rate promotional period offered by lenders three years ago.
But a decline in special mention loans, an indicator of future NPLs, to 1.7% at the end of March from 1.77% three months ago painted a brighter picture for bad housing loans. Special mention loans are those between one month and three months overdue.
The upsurge in soured mortgages and credit card loans contributed to a rise in bad consumer loans to 2.82% of outstanding loans at the end of March from 2.71% at the end of 2016.
Bad loans are a lagging indicator and typically take two or three quarters to decline after an economic pickup.
"The strong increase in housing NPLs [for the three months to June] was mainly due to the deteriorating debt-servicing ability of homebuyers amid weak economic conditions and high household debt," Mr Alongkot said.
In a bid to thwart housing NPLs' rise, commercial lenders have introduced several measures, including debt rescheduling and restructuring. The disposal of bad loans and its effectiveness will be manifest later this year, Mr Alongkot said.
"Commercial banks also have been focusing on preventive measures to prevent more defaults, rather than just selling bad debt, so these measure should soon pay off," he said.
Mr Alongkot said the approval rate for housing loans has risen this year as a result of commercial banks' improved matching of products with customers.
Meanwhile, Kitti Pattanapongpiboon, chairman of the Housing Finance Association, said he expects a slowdown in bank mortgage loan growth this year because of customers' weak purchasing power and high household leverage.
He said the association forecasts 500 billion baht worth of new housing loans this year, down slightly from last year.
Growth in housing loans was recorded at 6% in the first quarter of this year, down from 6.9% growth for the whole of 2016, according to central bank data.
"The economy has its ups and downs, so it's a good thing that the housing loan market is adjusting to the new economic conditions," Mr Kitti said.
He said the tepid growth in housing loans also contributed to an uptick in NPLs relative to total mortgages.
"Thailand is one of the freest housing loan markets in the world, so it's good for the customers that commercial banks have become more cautious in offering new loans to prevent rising defaulted loans," Mr Kitti said.
The association is set to hold its Home Buyers Expo 2017, where 2.6 billion baht worth of non-performing assets will be put up for sale and new loans worth 15 billion baht are to be extended to homebuyers who apply at the expo.
The event runs Aug 17-21 at Queen Sirikit National Convention Center.