Lending spigot still open despite LTV curbs

Lending spigot still open despite LTV curbs

Strong growth in business loans offsets mortgage slowdown in April

Commercial banks' mortgage lending showed signs of slowing down in April after new loan-to-value (LTV) curbs took effect, but net loans in overall categories continued to grow for a third straight month, says Kasikorn Research Center (K-Research).

The net amount of loans extended by 14 local commercial banks in April rose by 26.7 billion baht, up significantly from 16.5 billion baht in the previous month but down from 30.5 billion baht in February, the report said.

In January, commercial banks' net loans shrank by 60.1 billion baht.

K-Research said mortgage lending was subdued last month after the average of 54 billion baht per quarter from October to March.

Homebuyers had rushed to seek home loans before the tougher mortgage loan requirements began on April 1.

Under the LTV curbs, a minimum down payment of 30% is required for third and subsequent mortgages, while the minimum down payment for a second housing loan is 10-20%, depending on how long a borrower has made payments on the first.

An LTV ratio of 80% is required in cases where a borrower buys a residence valued at 10 million baht or higher. The central bank introduced the measures with the aim of improving credit standards and curbing speculative and buy-to-let activity.

The state-owned GH Bank reportedly saw a sharp reduction in housing loan extensions to 9 billion baht in April, far below the average loan target of 15 billion baht a month.

It remains uncertain whether the steep fall in loan demand stemmed from the LTV measures, but GH Bank's head has said the decline prompted the Finance Ministry to ask the Bank of Thailand to loosen the regulations.

K-Research said strong business lending, particularly for working capital, and some retail lending such as credit cards and car loans offset slower growth in mortgages in April when compared with the previous month.

On a yearly basis, net loans fell by 4.5% in April, narrowing from a nearly 5% decline in March.

K-Research expects commercial bank loans to expand at a pace close to its forecast of 5% this year.

Factors to be monitored include improvements in the overall economy and household purchasing power and developments in retail lending after the central bank signalled that a variety of tools could be used to reduce financial instability.

In another development, the research unit said deposit growth outpaced lending in April, as seen by the fact that the ratio of loans to deposits plus bills of exchange edged down to 91.6% at the end of April from 92.3% in March and 92.7% at the end of last year.

Deposits outstanding rose by 139 billion baht in April from the previous month, K-Research said, adding that some of the larger banks contributed to the higher deposits.

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