Banks are using preemptive measures to help mortgage clients handle rising rates as central bank hikes affect floating mortgage interest rates.
Thakorn Piyapan, president of TMBThanachart Bank (ttb), said the bank has offered some mortgage customers the option to increase the monthly debt repayment amount or extend the loan period to ease the higher debt burden per month amid rising interest rates.
Most of the bank's mortgage clients have been able to repay debt as usual thus far amid rising interest rates, said Mr Thakorn.
If the Bank of Thailand raises its policy rate by 0.5 percentage points, many of ttb's customers should still be able to service the debt, he said.
However, around 0.5% of mortgage clients would face difficulties with the debt payment, said Mr Thakorn.
If the central bank hikes interest rates, 0.5% of ttb's mortgage clients cannot reduce the principal amount under their existing contracts, he said, because homebuyers need to pay higher interest charges per month.
As a result, their debt repayment ability would weaken in later years, particularly for mortgage contracts of 20-30 years.
"The bank has offered 0.5% of its customers, who are likely to generate bad debt in the future, the option to increase the debt payment amount per month or extend the housing loan period," said Mr Thakorn.
"These measures would ease the financial burden of customers and help the bank to maintain good loan quality."
He said the number of affected clients is quite low and the bank expects to control the asset quality of this loan segment as interest rates rise.
Given the upward interest rate trend, Mr Thakorn said mortgage borrowers are the main concern rather than other types of borrowers, mainly referring to mortgages with floating interest rates.
Normally banks offer a fixed interest rate for the first three years of a mortgage, after which the rate floats based on the minimum retail rate (MRR).
Currently the country's sixth-largest bank, ttb offers an MRR of 7.38%.
The MRR of the five larger banks comprise Bangkok Bank at 6.85%, Kasikornbank at 6.85%, Krungthai Bank at 7.12%, Siam Commercial Bank at 6.87% and Bank of Ayudhya at 6.9%.
Banks have increased their lending rate, in line with the central bank's policy rate hike.
The policy rate is expected by economists to reach a terminal level of 2% this month, up from 1.75%.
Ekasith Phrutthipalakorn, head of consumer products at CIMB Thai Bank (CIMBT), said less than 0.5% of the bank's mortgage clients would be affected by higher interest rates.
Similar to ttb, CIMBT has offered clients the chance to increase the loan payment per month or extend the loan maturity to ease their financial burden.
