The Bank of Thailand has launched an examination of auto loans after lending for car purchases last year surged at a double-digit rate, the fastest pace in the past six years.
The central bank’s examination begins this quarter, and the regulator will continue to monitor the situation throughout the year, said Somchai Lertlarpwasin, senior director of the financial institutions strategy department.
“The BoT will examine auto loans in all areas, especially loan approval standards, debt-to-service ratio (DSR) and promotional campaigns, to prove whether such lending is underpricing,” Mr Somchai said. “We will consider auto loan growth relative to household debt.”
Auto loans recorded 12.6% growth in 2018, jumping from 8.4% in the previous year, 1.4% in 2016, 0.5% in 2015 and a 3.4% decline in 2014.
The rapid growth has spurred the central bank to keep an eye on the business.
Commercial banks’ auto loans outstanding rose to 1.07 trillion baht last year, while the growth pace of 12.6% was higher than that of any other consumer loan product.
A surge in bad car loans and rising special mention loan ratios are other areas of concern.
The non-performing loan (NPL) ratio for car loans climbed to 1.66% in 2018 from 1.6% in 2017. Special mention car loans, meaning loans overdue by more than one month but less than three months, stayed at a high level of 7.11% in 2018 after readings of 7.15% in 2017, 7.43% in 2016, 7.8% in 2015 and 8.28% in 2014.
“The BoT needs to inspect and monitor the business segment continuously before making a decision as to whether the tightened regulations are necessary,” Mr Somchai said.
Last year, mortgages were the target of a central bank examination, resulting in more stringent requirements for loan-to-value (LTV) ratio for second and subsequent housing loans. Those rules will come into force on April 1.
Mr Somchai said housing loans with an LTV ratio above 100% have declined to around 19% of total mortgages from above 20% before the central bank signalled tougher measures last October.
Mortgage lending expanded 7.8% last year, compared with 5.5% in 2017. Bad housing loans stood at 3.25% in 2018, up from 3.23% in 2017, 2.93% in 2016, 2.44% in 2015 and 2.19% in 2014.
Commercial banks’ overall loans rose 6% in 2018, up from 4.4% growth the preceding year, in line with the improving economy.
Loans increased across segments, with business loans up 4.4%, large corporate loans up 4.1%, SME loans up 4.5% and consumer loans up 9.4%.
On the loan quality front, the ratio of gross NPLs to total loans last year was 2.93%, edging up from 2.91% in 2017. Gross NPLs outstanding in 2018 stood at 443 billion baht, increasing 14 billion baht from the previous year. The figures reflect stable loan quality.
Mr Somchai said the gross NPL ratio this year could increase because banks have altered strategy to manage bad loans by themselves rather than through divestment.
Economic circumstances and a structural problem could also pressure some business segments, especially SMEs, he said.
The profitability of the banking sector remains a positive sign. Interest income has been the main contributor after the fee-based income of some banks, particularly fund transfer fees, declined.
