Commercial banks will need to offer home loans with low lending rates in order to meet their year-end performance targets, reports local media. The Bank of Thailand (BOT) has recorded medium-paced growth in home loans based upon real demand. This has created a higher level of competition among banks for home loans.
“Today, the competition is fiercer, due partly to applications for home loans growing as expected. So, have banks turned to extending more loans to this segment. Besides, now it’s coming up to the end of the year and banks may need to accelerate their efforts to meet their home loans targets,” says a source to The Nation.
One change in the home loan competition has seen banks now run low interest campaigns for all groups of customers. In the past, low lending rates were only available to prime customers. These loans, which have low installments for the first 3 years, carry a risk as bad debt can accumulate should the increased installments after the first 3 years prove too expensive for the party taking out the loan.
Non-performing loans (NPLs) for mortgages rose to 3.26% of total outstanding home loans in the 3rd quarter, according to data from the BOT. This jump was credited to the high competition that saw banks offer low interest loans in the past 4 years.
Home loan growth is up by 12 to 13% during this time, but it has slowed down to only 5-6% this year. Part of the slowdown in demand is attributed to banks being more cautious about who they will extend a loan to.
“Some of credit extension conditions are more stringent. Therefore, loan growth is not very high. Based on a report in September, we see a medium growth with rises in both demand and supply. Competition was not concentrated in a particular segment and we feel it’s real demand,” says Daranee Saeju, Senior Director at the BOT Financial Institutions Strategy Department.