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Banks tighten up project financing and mortgages

Tuesday, 18 November 2008

source: The Nation Nov 13 2008 Homebuyers warned to investigate developers' ability to deliver their products. Some of Thailand's property and construction firms are beginning to face the negative impacts of the global economic crisis, with commercial banks restricting both project loans and mortgages, property experts say. "We are now seeing some property firms delaying their payment of construction fees to contractors because they are facing a credit crunch. Commercial banks are freezing their provision of project loans if sales are lower than 40 per cent of total project value," said Property Perfect chief operating officer, Teerachon Manomaiphibul. He said commercial banks began to restrict loans to property developers last month, when they saw some risk in the property sector because the global recession had led foreign investors to suspend their investments in property markets around the world. The commercial banks are investigating residential projects that focus on foreign buyers and property firms in which a major stake is held by foreign investors, he said. LPN Development managing director Opas Sripayak warned that some condominium projects with presales lower than 40 per cent would face a hard time because the policy of commercial banks was to freeze their project loans. Homebuyers should study development projects carefully and determine whether developers had enough cash to complete them. A failure to investigate properly may see them lose both their money and the residence, he said. "You will see some city condominium projects where work is being delayed because they don't have enough cash to keep the projects going when the bank freezes their project loans," Opas said. However, the commercial banks have continued to provide loans to developers with enough cash flow to develop residential projects and with presales amounting to 50 per cent of project value, he said. Government Housing Bank (GHB) president Khan Prachuabmoh said his bank was now restricting the provision of both development project loans and mortgages, because it was concerned about nonperforming loans (NPLs). He said NPLs could increase significantly if earnings fell when the local economy was impacted by the global economic crisis. "We have tried to help our customers, but we cannot relax our investigations because we have to be concerned about our financial health," he said. Although the GHB has restricted its provision of mortgages, its NPLs rose substantially from 5.8 per cent of outstanding loans at the end of last year to 11.8 per cent at the end of June, Khan said. The NPLs amounted to Bt31.78 billion, compared with outstanding loans of Bt577.24 billion, at the end of last December and rose to Bt68.99 billion, out of outstanding loans totalling Bt582.74 billion at the end of June. The GHB will make loans amounting to Bt90 billion this year, falling short of its target of Bt95 billion, following its decision to strictly investigate its customers, Khan said. KasikornBank's senior vice president for consumer loans, Chatchai Payuhanaveechai, said his bank was restricting the provision of mortgages for homebuyers. The bank now rejects up to 40 per cent of new mortgage applications. "Banks now have to recheck their customers' credit history from the credฌit bureau and also calculate whether their earnings are sufficient to repay loans, before they can be approved. As a result we reject up to 40 per cent of new applications for mortgages," he said. Two or three years ago, the banks commonly rejected 2030 per cent of applications for new mortgages, according to customers' credit history. Following the recent restrictions on new mortgages, Chatchai said he believed Thailand's banking system would avoid a mortgage crisis similar to the US subprime fiasco. However, he is concerned about financial liquidity in the banking system. The system now has a loan per deposit ratio of about 90 per cent, leaving liquidity in the market of between Bt400 billion and Bt500 billion, and that may be not enough to meet the demand for mortgages next year, he said.

 

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