Central bank unfazed by bad loans for property

Central bank unfazed by bad loans for property

The Bank of Thailand is unconcerned about pre-finance loans for property developers and bad property loans, says a senior official, citing the sound financial condition of large developers.

Real estate loans continue to grow, while the industry's non-performing loans (NPLs) are controllable, so there are no worries about project financing and asset quality despite the bad-loan ratio of mortgage lending ticking up, said Tharith Panpiemras, senior director for banking supervision and risk assessment.

"Banks typically offer pre-finance loans to large developers with sound finances and long-term experience in the business, so the NPL ratio of the project loans has been steady," he said.

Local big developers have adjusted their business strategy on the heels of the economic and property market slowdown, particularly in high-rise projects.

Apart from bank loans and debt instruments, the bond market is a key funding source for large property developers and helps mitigate the banking sector's credit risk.

But the central bank has been monitoring non-investment-grade and unrated bonds, including some issued by smaller developers.

According to Securities and Exchange Commission data, non-investment-grade and unrated outstanding bonds as of September 2019 were worth 238.71 billion baht, up 18% year-on-year.

Bangkok Bank senior executive vice-president Virasak Sutanthavibul said the bank offers loans with a focus on large developers that have long-term experience and a good reputation. Business track record, debt-to-equity ratio and each project's pre-sales are still required for loan analysis.

Pre-financing loan demand for new investment projects, especially condos, has slowed down after the tough loan-to-value limits governing mortgage loans were implemented last April.

Kasikornbank executive vice-president Surat Leelataviwat said KBank is still providing loans to the property sector, but on a selective basis. Real estate loan demand and the bank's pre-financing loan growth this year are expected to decline in step with the flagging economy and property market.

The bank forecasts new residential project sales this year to drop by 15-30% from last year, with sales in provincial markets expected to be halved.

With the gloomy outlook, asset quality is KBank's focus to keep a lid on bad loans in the segment, Mr Surat said.

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