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Moody's: Thailand's new mortgage rules are credit positive for banks

The Bank of Thailand's new mortgage-lending rules are credit positive as the measures will improve banks' asset quality for their newly originated mortgage loans and help in reducing speculative buying in the real estate sector, Moody's said.

The Thai central bank announced the measure to tighten credit underwriting standards for mortgage loans. The new rules require the maximum loan-to-value ratio to be restricted at 80% on new mortgages for homes worth more than 10 million baht. Further, the new rules would prohibit banks from providing advances that exceed the value of a property.

Moody's said the new rules will help reduce speculative buying and force banks to focus more on borrowers with better credit quality. Banks' credit underwriting standards for mortgage loans have deteriorated as a greater proportion of newly originated mortgage loans have higher loan-to-value ratios and lower debt servicing capacity.

Mortgages are a big part of Thai banks' loan portfolio, accounting for 17% for systemwide loans and 50% of total retail loans at the end of the first quarter of 2018, Moody's said. As such, the deterioration in mortgage underwriting quality can have a significant effect for banks if property prices fall significantly.

As of Oct. 5, US$1 was equivalent to 32.81 Thai baht.