Rising mortgage debt could hit record, warns KResearch

NPLs at steady level because of time lag

Kasikorn Research Center (KResearch) forecasts the country's outstanding mortgages will set a new record of 21-22% of Thailand's gross domestic product (GDP) over the next two years, a trend that could heighten pressure on rising household debt.

Overall housing loans stand at 19.9% of GDP now, up from 16.8% during the 1997 financial crisis. The robust loan growth is attributed to several factors _ rising purchasing power, easier accessibility to funding sources, mass transit system and real estate developments, and low interest rates, said managing director Charl Kengchon.

"With a lot of residential projects in the pipeline over the next two years, it could increase the mortgage-to-GDP ratio by 0.5 to one percentage point per year. Even though a property bubble isn't a concern now, rising household debt to GDP is worrisome," said Mr Charl.

The recent warning by the Bank of Thailand about rising household debt has rattled the markets. Higher household debt is largely attributed to the Yingluck Shinawatra administration's populist policies, particularly the tax rebate of up to 100,000 baht for first-time car buyers.

There has not been a rise in non-performing loans due to the time lag between new loan extensions and the period by which loans are classified as NPLs.

Low interest rates can make mortgages look reasonable now, but when the rate increases it could stress budgets.

KResearch predicts the policy rate will be raised in a few years after the excessive liquidity from foreign inflows starts to decline.

The government's planned infrastructure project investment worth a combined 2 trillion baht and a potential exodus of fund flows when the US Federal Reserve stops its quantitative easing could tame liquidity.

But Mr Charl acknowledged a lower policy rate cut would do nothing to slow the baht's rapid appreciation.

KResearch slashed its baht target for mid-year to 29 to the US dollar from 29.50 previously and to 28.50 at year-end from 29.

For the private sector, the stronger baht presents an opportunity to branch out to Cambodia, Laos, Myanmar and Vietnam. Thailand is the second-largest investor in that group behind China, but third-ranked Japan may surpass Thailand by next year's first quarter.

Meanwhile, a Capital Nomura Securities research note said Thailand's loans to the retail segment are skyrocketing.

"From the second quarter of 2011 through the fourth quarter of 2012, the gross quarterly increase in retail NPLs grew by 47%, while the corporate and SME segment saw a 13% decline. Retail loans for Thai banks have gone from 13% of GDP in 1996 to 26% in 2012. Corporate and SME loans have gone from 81% of GDP to 51%," it said.

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Writer: Somruedi Banchongduang
Position: Business Reporter