Banks Scrap 0% Rate Mortgage Loans
Three large banks scrapped zero-interest rate mortgages, their standard offer at the Money Expo for 13 years, to abate regulators’ concerns about a property bubble.
Siam Commercial Bank (SCB), Kasikornbank (KBank) and Bangkok Bank (BBL) stopped offering these mortgages at the expo, but other banks continued. The state-owned Krungthai Bank (KTB) and Government Housing Bank (GHB) provide the longest interest-free period at eight months, while mid-sized Thanachart Bank and Government Savings Bank (GSB) offer interest-free mortgages for the first six months.
The Bank of Ayudhya (BAY) will provide no-interest mortgages for the first three months of the loan.
Chatchai Payuhanaveechai, KBank’s executive vice-president, said the bank cancelled zero-rate mortgages for both general packages and selective property projects after the central bank asked for cooperation in preventing a property bubble.
The Bank of Thailand frequently voiced concerns that the psychological impact of no-interest mortgages would stoke higher loan demand and create speculation in the red hot property market.
“Over the course of a mortgage, interest rates for loans with no-interest teaser periods are barely different than those without teaser rates. The only difference is no-interest mortgages can help homebuyers reduce the principal owed during the teaser period,” he said.
The central bank asked banks to clarify the interest burden to customers for these mortgages. Typically interest rates increase gradually on a ladder scale after the zero-rate introductory period.
Outstanding mortgage loans in the banking industry stood at 2.26 trillion baht last year, up 11% year-on-year. Non-performing housing loans were marginal at 2.3% of the total loan portfolio.
SCB is the No.1 housing lender at 371.25 billion baht, followed by KTB at 221.13 billion, KBank at 212.29 billion, BBL at 149.50 billion, and BAY at 104.43 billion.
BAY president Phillip Tan said despite the bank’s no-interest mortgage offer, its risk management and loan approval criteria remain stringent.
“To reach the top three in the retail banking segment, the bank needs to improve its infrastructure system. We believe we can meet that ambitious goal regardless of whether we offer the zero-rate mortgages,” said Mr Phillip.
Separately, the Bank for Agriculture and Agricultural Co-operatives lured investors hungry for yield with a 5% fixed deposit rate for a five-month untaxed package, exclusive to the expo. The state-owned bank’s offer is the highest deposit rate at the fair this year.
Deposits can range from 50,000 to 500,000 baht, with 4,000 depositors required for the product to be subscribed. Some 1,000 depositors are allowed each day of the expo on a first-come, first-serve basis, running to May 12. It was fully subscribed in two hours yesterday.
The Industrial and Commercial Bank of China (Thai), a newcomer to the expo, made a splash in the Thai market with a 3.6% rate per year for a fixed eight-month deposit product. Kiatnakin Bank offered a 3.25% fixed deposit rate for five months.