Thailand braces for fresh wave of bad loans as property market cools

Retail mortgage NPLs account for 16.6% of systemic bad loans and 25.9% of total loans.

The spectre of bad loans are once again rearing their ugly head at banks in Thailand as mortgage loans sour in line with the country’s softening real estate market, according to a report from Maybank Kim Eng.

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Unlike the auto segment where non-performing loans (NPL) have dropped to multi-year lows at 1.6%, the NPL ratio in the retail mortgage segment hit a high of 3.4% in Q3 2018. The headline figure is higher than the sector’s entire NPL ratio of 2.9% as housing NPLs account for 16.6% of systemic soured loans.

“We still expect rising market NPLs in 2019,” analyst Graeme Cunningham said in a report. “Whilst the reduction in debt service ratio may help curb new retail housing NPLs, we believe that it is unlikely to offset a potential deterioration in asset quality for existing housing debt.”

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Retail mortgages also account for a fourth (25.9%) of Thai banks’ total loans as of Q4 and still growing rapidly at 7.6%.

A bright spot in the lacklustre regional property market, Thailand real estate is set to soften slightly as Chinese capital takes a hit from the protracted trade dispute. Mainland Chinese investors have splashed out nearly $10b in Thai condos to help push price increases across major cities like Bangkok, data from Bloomberg show.

Siam Commercial Bank, Kasikornbank, Krung Thai Bank all have a significant retail loan exposure as Cunningham recommends sell unlike Bangkok Bank which has a notable lack of retail exposure.

On the other hand, the retail exposure of TISCO and Kiatnakin Bank (KKP) is largely located in the auto hire purchases and can expect a boost from vehicular spending. “We expect both to continue to be supported by continued strong auto sales through 1H19, while autos are also much lower ticket items than mortgages and tend to affect the DSR less,” concluded Cunningham.