Higher debt leverage resulting from double financing is making it more difficult for property companies to secure bank loans, forcing some developers to rely on short-term loans from major shareholders.
Apinant Klewpatinond, chief executive of Kiatnakin Phatra Financial Group, a holding company of Kiatnakin Bank, said the bank continues to apply its existing loan assessment criteria for the property sector.
However, based on economic conditions and a higher debt-to-equity (D/E) ratio, credit risk in the sector has risen, making it challenging for some residential projects to obtain bank financing, he said.
During the recent era of low interest rates, many property companies increased their debt leverage through both bank loans and bond issuances. This double financing further elevated the D/E ratios of some companies.
According to Mr Apinant, the economic slowdown has presented significant challenges for several bond issuers. When approving new loans for the business sector, the bank also takes into account the potential for bond rollovers.
"For cyclical businesses, the bank will evaluate the broader business environment before approving new loans. Given the cyclical nature of the property sector, we are exercising caution in loan offerings amid the heightened risks in the mortgage market," he said.
In response to these challenges, some residential developers are taking steps to conserve and raise cash.
These measures include avoiding new costs, borrowing short-term loans from major shareholders and selling assets to manage risks in a difficult financial market and limited mortgage loan approvals.
The property business constitutes a significant portion of KKP's loan portfolio, accounting for 27.7 billion baht out of the bank's total business loan outstanding of 60.1 billion baht as of June.
Additionally, KKP collaborates with the Bank of Thailand to support sustainable finance under the Financing the Transition programme, with a key focus on the property sector.
Separately, Amporn Supjindavong, UOB Thailand's head of commercial banking, said the bank continues to offer financial facilities to property clients under a selective strategy.
For new residential investment projects, the bank primarily focuses on homes priced at a minimum of 5 million baht per unit, due to the lower risk associated with post-finance.
"Most large developers do not struggle with residential sales. Instead, they face challenges related to the increasing rejection rates of mortgage loans, stemming from homebuyers' weakened debt repayment capabilities. As a result, the transfer of home ownership has become a more significant issue for developers than sales," she said.
Ms Amporn said when approving loans for new residential projects, the bank considers several factors, including house prices, location, project sales and the financial status at both the project and company levels.
The D/E ratio and the company's ability to manage bond rollovers are also key considerations.
The bank anticipates that mid-sized property companies, in particular, may resort to borrowing short-term loans from shareholders to support cash flow for investment projects. Large developers still report positive financial conditions, she said.