Banks booked marginal growth in mortgage loans for the first half of this year as rising interest rates weakened the purchasing power of homebuyers.
Eight of the 10 SET-listed banks in total reported consolidated outstanding mortgages of 2.39 trillion baht as of June, up 1.04% from 2.37 trillion baht in December 2022.
Among the country's five biggest lenders, Siam Commercial Bank (SCB) booked the highest growth rate of mortgage loan products at 2.69%, while Bank of Ayudhya, under the marketing name of Krungsri, reported that its mortgage loan products contracted 2.73% over the same period.
However, Land and Houses Bank (LH Bank) recorded the highest rate of mortgage loan growth during this period at 16.7%, followed by Kiatnakin Phatra Bank (KKP) at 7.12%.
Normally, banks charge mortgage loans at a floating rate during the fourth year of the loan's maturity. Therefore, borrowers of these loan products would be affected by rising interest rates.
Krungsri's executive vice-president Nathapol Luepromchai said the contraction of the bank's mortgage loans during the first half of the year was due to reduced affordability for would-be homebuyers impacted by both interest rate hikes and increasing construction costs.
The economic outlook in the second half would mainly depend on the market environment, he said.
The Bank of Thailand is expected to raise its policy rate under policy normalisation.
Furthermore, greater uncertainty in terms of political factors would also dampen the confidence of consumers and would-be homebuyers in the second half.
In light of this scenario, the overall housing loan market could show a marginal growth rate, a flat rate of growth or a contraction depending on the market situation.
Given the greater uncertainty, would-be homebuyers would not commit to long-term housing loans and would delay their decision regarding home purchases until next year.
Krungsri would also pay attention mainly to asset quality rather than loan growth in the second half.
"Under the worst-case scenario amid high inflation, interest rate hikes and a delay in the formation of the new government, mortgage loan growth of the overall market could contract by 4-5% this year. Krungsri does not want to grow housing loans against the market," Mr Nathapol said.
However, he said the impact on the property sector would be less than the mortgage loan market as demand among upper-income homebuyers remains strong, particularly in the high-net-worth segment.
Demand for residential projects priced in the range of 50-100 million baht per unit is still positive. Meanwhile, this market segment does not need a bank's mortgage loan service.
He said Krungsri would focus on home refinancing loans, or a "Home for Cash" service, rather than new mortgage loans in the second half.
Small entrepreneurs are the key target of this mortgage loan-related product as they are not sensitive to rising interest rates compared with other types of homebuyers.
In addition, additional credit lines would support entrepreneurs to expand their business and generate income amid economic uncertainty.