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Thailand: BoT soothes ruffled feathers over new mortgage rules

The Bank of Thailand has moved to calm jitters, saying the real estate market is unlike the 1997 financial meltdown and tighter mortgage lending measures are considered “preventive”. 
“It is similar to preventing a fire when we see smoke,” Wajeetip Pongpech, assistant governor for the financial institutions policy group, said in a statement released on Monday. 
She referred to an IMF study on real estate in over 50 economic crises over the past 10 years, noting these measures to rein in mortgages are aimed at preventing potential problems in the future. 
The measures tighten financial institutions’ mortgage standards, installing discipline to build up savings and reducing artificial demand to prevent speculation, helping those who have real demand to purchase homes at reasonable prices, said Mrs Wajeetip. 
The central bank measures, expected to become clearer early next month after a public hearing on them ended Monday, will apply to multiple mortgages only. If previous mortgages are paid off, the rules will not apply to new mortgages for second or subsequent homes, she said. 
The new measures will not be retroactive, said Mrs Wajeetip. 
According to the initial regulations, the regulator will require mortgage borrowers to make a down payment of at least 20% of the home value for those worth 10 million baht and higher, as well as for second and subsequent mortgages. The new requirement is expected to come into force from Jan 1, 2019. 
Lenders will also be required to limit mortgages together with top-up mortgages such as personal loans and loans for mortgage-reducing term assurances at 80% of home value for second homes and those worth at least 10 million baht, and at 100% for first homes valued below 10 million. 
The central bank uses risk weight guidelines to control mortgage lending. The risk weight assigned to mortgage loans is only 35% if the loan-to-value ratio (LTV) is less than 95% for low-rise residential property units, 90% for high-rise units and 80% for housing units priced above 10 million baht. 
If the LTV ratio exceeds these guidelines, the risk weight will increase to 75%. Top-up loans are not included in the calculation of the LTV ratio at present. 
Property developers and mortgage lenders have requested the focus be on reining in mortgages for third and subsequent home purchases, and that the measures be delayed for six months from January. 
Most mortgage lenders are continuing their competitive strategies for the final quarter this year to gain more customers before the measures are enforced. 
Kasikornbank (KBank) plans to expand its housing loans in the fourth quarter, typically the peak season, but such lending would comply with the central bank’s proposed rules, president Kattiya Indaravijaya said. 
KBank, the country’s third-largest lender by assets, expects to reach its mortgage growth target of 5% this year, with the central bank’s new rules having a limited impact because borrowers for mortgages worth 3-7 million baht for first homes are the bank’s key focus, said Ms Kattiya. 
Aphinant Klewpatinond, chief executive at Kiatnakin Bank, said the bank’s mortgage growth would be cooled to comply with the central bank’s guidelines. 
The new regulations are meant to improve the asset quality of the business, he said. 
The bank’s mortgage lending surged 47.9% from the end of 2017 to 16.6 billion baht at the end of September. 

Source: https://www.bangkokpost.com/business/finance/1563502/bot-soothes-ruffled-feathers-over-new-mortgage-rules