Loan credit standards expected to tighten

Loan credit standards expected to tighten

New mortgage curbs cause a squeeze

Credit standards for consumer loans, particularly in auto lending, are projected to ratchet up in the second quarter, according to the Bank of Thailand's quarterly survey on credit conditions.

Credit standards for mortgages are expected to tighten this year given enforcement of the central bank's new loan-to-value (LTV) requirement and financial institutions' concerns about borrower quality and real estate outlook. The survey received feedback from 27 Thai commercial banks, branches of foreign commercial banks, and specialised financial institutions (SFIs), as well as 25 credit card and personal loan companies.

Accumulated household debt, especially auto and mortgage loans, is a risk the central bank is monitoring because it could hurt financial stability.

The central bank is monitoring auto lending after strong growth in the sector, but the risk posed by vehicle lending to the financial system is smaller than that of mortgages because it does not involve investment or speculative demand.

Household debt ratio climbed to 78.2% of GDP at the end of 2018 from 78% at the end of September, driven largely by consumer finance.

The survey found demand for mortgages in the first quarter increased from the previous quarter because of acceleration in house ownership transfers before the implementation of the housing loan curbs, effective from April 1.

Meanwhile auto loan demand in the first quarter declined after having accelerated in the previous quarter, in line with lower than expected vehicle sales in some categories, the survey found.

Personal loans extended by some financial institutions decreased due to heightened competition among financial institutions.

For the second quarter, financial institutions anticipate a decline in consumer loan demand for almost all purposes, especially demand for housing loans after implementation of the LTV measure.

However, credit card loan demand is expected to rise in line with household consumption, the survey stated.

Regarding credit standards for corporate loans in the first quarter, the survey found standards tightened from the previous quarter, especially for loans to large firms, largely because of industrial and economic conditions. For the second quarter, institutions are expected to tighten credit standards further for loans to large firms.

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