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BBL reins in lending on housing glut

Low-rise remains key amid steady demand

The skytrain passes a condominium on Bang Na-Trat Road. Bangkok Bank is tightening mortgage lending and financing for high-rise projects. Weerawong Wongpreedee

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Bangkok Bank (BBL), the country's largest lender by assets, has tightened both mortgage lending and refinancing for condominium projects to guard against risks amid an oversupply in some areas, says a high-ranking executive.

Intensified competition through promotional campaigns for high-rise residential projects suggests a glut, so the bank is ratcheting up loan scrutiny for these projects, said executive chairman Deja Tulananda.

Locations for both high-rise and low-rise real estate projects have been the bank's loan approval determinant, he said.

The bank has focused on lending to low-rise property projects rather than high-rise ones, given that supply keeps pace with positive demand, Mr Deja said.

Loan-to-value (LTV) ratio has been used as a means to control asset quality amid the tougher competition and the bank's ratio is based on the Bank of Thailand's requirement, he said, without revealing BBL's proportion.

The central bank requires commercial banks to maintain LTV at 95% for low-rise homes, both townhouses and detached houses, and 90% for condos.

LTV is a lending risk assessment that indicates the ratio of a loan to the value of an asset purchased.

Typically, a loan with a lower LTV ratio bears lower risk for both lender and borrower, as less capital is being borrowed.

Central bank governor Veerathai Santiprabhob earlier sounded the alarm in light of the growing appetite for mortgages, urging banks to retain their risk management practices when considering housing loans. The central bank found that some financial institutions had a higher LTV.

The Bank of Thailand's Monetary Policy Committee and Financial Institutions Policy Committee underscored Mr Veerathai's comment, saying after a joint meeting on June 29 that the higher ratio of new mortgages with LTV rates exceeding 90%, the increasing loan-to-income (LTI) proportion and deteriorating bad mortgage rates all pointed to the residential property market's fragility.

BBL reported strong loan growth for the property and construction sector of 10.6%, some 211 billion baht, in the first half of this year.

The bank's mortgage portfolio rose 1.4% to 231 billion baht in the period. Loans outstanding increased 4.4% in the second quarter and 3.1% in the first half to 2.06 trillion baht.

Mr Deja said loan growth in the first half of the year was largely due to wholesale banking business.

Corporate loans account for the highest amount of BBL's business segments, he said, and asset quality is good because of strong risk management.

BBL has expertise in wholesale banking business, while syndicated loans are an instrument to diversify risk. The bank complies with the central bank's single lending limit (SLL) requirement of up to 25% of the capital base.

SSL is a rule that limits credit exposure to firms under the same group to 25% of a bank's first-tier capital.

"We don't need to ask for SLL expansion, though the regulator allows it on a case-by-case basis, because it would result in higher provisions for loan losses," Mr Deja said.

The bank sees its lending growth target of 3-5% this year as achievable, he said. BBL plans to continue monitoring the economic situation amid escalating risks in the second half, particularly external risks from global uncertainties.

On the domestic front, the bank will be cautious to see if economic growth trickles down to low-income earners, Mr Deja said.

BBL shares closed Friday on the Stock Exchange of Thailand at 202 baht, down three baht, in trade worth 739 million baht.


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