Property: BoT seeks panel review of banks’ lending policy

Event:


The Bank of Thailand will ask the Financial Institutions Policy Committee (FIPC) to review the loan to value ratio used by banks in financing property projects in order to prevent a bubble from forming in the condominium market, particularly for the mid-lower end segment (unit prices lower than Bt3mn).

At present, commercial banks generally lend a maximum of 80-95% of the collateral value (selling price) and will cap the mortgage monthly installment at around 40% of household income.

Comment

Conclusion: Although we believe that it is too early to implement such a policy (some time may need to be taken for related parties, including developers, to debate the measures), the BoT’s comment already creates policy risk. This concern should limit the sector’s performance in the near term until it is clarified. If this policy is truly implemented, its potential negative consequences in the short to medium term should be priced in the valuation and we foresee the possibility of a downgrade to our sector weighting from currently overweight.