Bangkok Post – Mortgage bad-debt rate climbs

Lower-income homeowners scramble to pay instalments once floating rates kick in

Lower-income homebuyers have struggled to repay mortgages following an uptick in interest rates, leading to a significant increase in housing non-performing loans (NPLs) during the second quarter of this year.

The NPL ratio for mortgages rose to 3.7% of outstanding credit in the second quarter from 3.5% in the previous quarter, the Bank of Thailand said on Tuesday.

The increase in bad debt is largely attributable to homebuyers earning less than 30,000 baht per month. Their incomes have not returned to pre-pandemic levels, said Suwannee Jatsadasak, a central bank assistant governor.

Many lower-income borrowers have been unable to service their debt following an increase in mortgage interest rates, especially after the transition to higher step-up levels.

Banks typically offer fixed-rate mortgages for the first three years, after which they shift to a floating rate, leading to higher monthly instalments.

“As a result of the higher rate, some borrowers were unable to make the higher monthly payments because their income remains unchanged,” Ms Suwannee said.

However, she said mortgage approval rates improved in the second quarter from the previous quarter, which should continue in the second half of the year. The improvement is partly attributed to banks focusing more on higher-income segments, said Ms Suwannee.

In related news, the NPL ratio for all consumer loans increased to 3.13% in the second quarter, from 2.95% in the previous quarter, with all retail products, including auto loans, personal loans and credit cards contributing to this rise.

NPLs for small and medium-sized enterprises increased to 6.89% in the second quarter from 6.86% in the previous quarter, while corporate NPLs remained steady at 1.13%, according to the central bank.

The overall NPL ratio for the banking industry rose to 2.84% in the second quarter from 2.80% in the previous quarter.

Special mention (SM) loans, defined as loans overdue by more than 60 days but less than 90 days, increased to 6.5% in the second quarter from 6.38%.

Ms Suwannee said both SM and NPL ratios in the banking industry were expected to continue rising, in line with the uneven economic recovery.

Banks have also reined in new loan growth because of the higher credit risk of borrowers, she said.

Total loans in the banking sector, based on consolidated loans outstanding, grew by only 0.3% in the second quarter, compared with a 1.3% growth rate in the same period of 2023.

The slowdown was mainly due to a decline in consumer loans, particularly car loans. Auto hire-purchase loans contracted by 4.8% in the second quarter, compared with a 1.5% contraction in the same period last year.

Despite these challenges, Ms Suwannee said the central bank is allowing banks to offer financial waivers to borrowers affected by floods, in line with responsible lending practices.

The regulator has also permitted minimum credit card payments to be set below 8% of the total balance, to support additional liquidity and interest rate reductions on a case-by-case basis.