Lower-income homebuyers have faced difficulties in repaying their mortgages amid rising interest rates, resulting in a notable increase in non-performing loans (NPLs) in the housing sector during the second quarter of this year.
According to the Bank of Thailand, the NPL ratio for mortgages climbed to 3.7% of outstanding credit in the second quarter, up from 3.5% in the previous quarter.
This rise in bad debt is primarily linked to homebuyers earning less than 30,000 baht per month, whose income has not returned to pre-pandemic levels, as noted by Suwannee Jatsadasak, an assistant governor at the central bank.
Many lower-income borrowers are struggling to manage their debt due to increased mortgage interest rates, particularly following a shift to higher step-up levels.
Typically, banks offer fixed-rate mortgages for the initial three years, after which they transition to a floating rate that leads to increased monthly payments.
“Because of these higher rates, some borrowers are finding it difficult to meet the increased monthly payments, as their income has remained static,” Ms. Suwannee explained.
However, she mentioned that mortgage approval rates improved in the second quarter compared to the previous quarter, an upward trend expected to continue in the latter half of the year. This improvement has been partly due to banks targeting higher-income segments, according to Ms. Suwannee.
In related developments, the overall NPL ratio for consumer loans rose to 3.13% in the second quarter, up from 2.95% in the previous quarter. This increase was driven by various retail products, including auto loans, personal loans, and credit cards.
Meanwhile, NPLs for small and medium-sized enterprises rose to 6.89% in the second quarter, compared to 6.86% in the previous quarter, while corporate NPLs held steady at 1.13%, as reported by the central bank.
The overall NPL ratio for the banking sector increased to 2.84% in the second quarter, up from 2.80% in the previous quarter.
Additionally, special mention (SM) loans—defined as loans that are overdue by more than 60 days but less than 90 days—rose to 6.5% in the second quarter from 6.38%.
Ms. Suwannee stated that both SM and NPL ratios in the banking sector are expected to continue rising due to the uneven economic recovery.
She also mentioned that banks have restricted new loan growth due to heightened credit risks for borrowers.
In the second quarter, total loans in the banking sector, based on consolidated outstanding loans, grew by just 0.3%, compared to a growth rate of 1.3% during the same period in 2023.
This slowdown was largely driven by a decrease in consumer loans, especially car loans. Notably, auto hire-purchase loans contracted by 4.8% in the second quarter, in contrast to a 1.5% contraction in the same period last year.
Despite these challenges, Ms. Suwannee indicated that the central bank is allowing banks to offer financial waivers to borrowers affected by flooding, in line with responsible lending practices.
Additionally, the regulator has permitted credit card minimum payments to be set below 8% of the total balance to enhance liquidity and interest rate reductions on a case-by-case basis.
