credit conditions of financial institutions (q1)
DESCRIPTION
Q1: demand for all types of corporate loans increased, demand for housing loans increased marginally, demand for credit card and other consumer loans increased, overall credit standards for corporate loans remained broadly unchanged, credit standards for housing loans continued to be loosened and credit standards for credit card and other consumer loans had been slightly tightened.TRANSCRIPT
The Bank of Thailand conducts a quarterly credit condition survey to review opinions of senior loan officers from financial institutions. It helps the Bank to be more efficiently and effectively in understanding and analysing developments of credit conditions as financial institutions play an important role in transmitting monetary policy and maintaining financial stability. The Bank has been exploring how the surveys are conducted in the light of the other central banks' experience. The questions in this survey are divided into 3 aspects as followed: 1) Supply for credit which is related to the tightness of credit standard for granted loans, factors affecting
credit standard as well as credit conditions and terms. 2) Demand for credit which shows conditions and factors that affect the demand for credit. 3) Outlook for credit approval in the next quarter to outline the tightness of credit standard, demand for
credit as well as concerns regarding the quality of credit. Besides, special questions may also be raised occasionally.
This survey was first launched in January 2008, with the aggregate results of 2007 Q4 being published in 2008 Q1. The Bank of Thailand has cooperated with 25 Thai commercial banks, branches of foreign commercial banks and specialised financial institutions (SFIs), covering more than 90 per cent of total credit in the financial system. This report can be accessed through http://www.bot.or.th/English/EconomicConditions/Thai/Pages/CreditCondition.aspx
Disclaimer: This report does not necessarily reflect the Bank of Thailand’s or any one financial institution’s view. Monetary Policy Committee uses this report, together with information from other sources in assessing and analysing economic conditions.
For additional information, please contact: Dr. Saovanee Chantapong Team Executive, Economic Intelligence Team Tel: 0-2283-6131 Ms.Thanyalak Vibulsrisajja Economist, Economic Intelligence Team Tel: 0-2283-5646 Domestic Economic Department, Monetary Policy Group Address: 273 Samsen Road, Phra Nakhorn, Bangkok 10200 Fax: 0-2282-5082 BOT’s Website: www.bot.or.th
Report on Credit Conditions of Financial Institutions in the First Quarter of 2010 and Outlook for the Second Quarter of 2010
Overview of the Results∗
In 2010 Q1, demand for all types of corporate loans increased from the previous quarter, in line with the expectation in 2009 Q4. Demand for both large corporate and SME loans increased, following the demand for working capital, inventory build-up and investment, as a result of improved order books from both domestic and foreign markets. Demand for housing loans in 2010 Q1 increased marginally from the previous quarter, following economic recovery, low interest rate policy, and consumers’ decision to accelerate registration and transfer of their house purchase in order to obtain benefits granted from the property stimulus measures which were supposed to be terminated at the end of March 2009. Demand for credit card and other consumer loans increased, especially for car leasing and durable goods following higher consumer confidence and attractive loan conditions.
Overall credit standards for corporate loans remained broadly unchanged, in line with their expectation in 2009 Q4. Respondent financial institutions viewed that risk perception regarding general economic conditions and outlook for industry had improved continuously. This resulted in somewhat less stringent conditions and terms, as reflected in a narrower margin for average loans to both large corporate and SMEs since 2009 Q2. However, there were signs of tight liquidity conditions observed in this quarter. Credit standards for housing loans continued to be loosened, following higher competition among financial institutions and continued improvement in housing market prospects. In contrast, credit standards for credit card and other consumer loans had been slightly tightened, contrary to the expection of easing credit standards in 2009 Q4, owing to concerns about credit worthiness of borrowers, cost of funding, and collateral.
As for 2010 Q2, respondent financial institutions anticipated an increase in demand for all types of corporate loans, following both domestic and global economic recovery, which in turn, stimulate production and investment. Demand for housing loans were expected to decrease after real estate transactions had been accelerated in 2010 Q1, along with the adverse impact from political uncertaintiy, which would probably lead consumers to postpone house purchase. Meanwhile, demand for credit card and other consumer loans would continue to expand, following higher consumer confidence and demand for consumption. Respondent financial institutions anticipated credit standards for all types of loans to be less stringent, as risk perception regarding general economic conditions and outlook for industry seemed to improve. In addition, other contributing factors were higher competition among financial institutions, and increased Loan-to-Value ratio (LTV) and Loan-to-Income ratio (LTI).
* Notes: 1) The Bank of Thailand conducts a quarterly credit conditions survey compiling senior loan officers’ opinion on bank lending practices. In the April 2010 survey, the Bank of Thailand received feedbacks from a total of 22 banks, comprising of 14 Thai commercial banks, 4 branches of foreign banks and 4 Specialised Financial Institutions (SFIs), covering about 92 per cent of total credits in the banking system.
2) Net percentage balances were calculated by weighting their market share in terms of outstanding loans of the respondent financing institutions, whereby negative balances indicate credit contraction or tightening of credit policy, net percentage balances = 0 indicate unchanged credit growth or credit policy and positive balances indicate credit expansion or easing of credit policy.
Report on Credit Conditions of Financial Institutions in the First Quarter of 2010 and Outlook for the Second Quarter of 2010*
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Report on Credit Conditions of Financial Institutions in the First Quarter of 2010 and Outlook for the Second Quarter of 2010
1. Corporate Loans (Loans or Credit Lines to Enterprises)
In 2010 Q1, demand for all types of corporate loans increased from the previous quarter, in line with the expectation in 2009 Q4. Demand for both large corporate and SME loans increased, following the demand for working capital, inventory build-up and investment, as a result of improved order books from both domestic and foreign markets. In addition, demand for corporate loans increased significantly in both wholesale and retail trade, and manufacturing sectors, particularly in food and beverages, chemical products, rubber and plastic products and metal industries. This evidently reflected a recovery in private consumption as well as production for both domestic and foreign markets. Furthermore, low interest rate was still a contributing factor to corporates’ demand for investment, especially for large corporates.
Apart from bank loans, it was noted that large corporates also relied on alternative financing sources, particularly through debt securities. Those issued securities were mainly concentrated in financial intermediaries, energy and real estate sectors.
In 2010 Q1, credit standards for corporate loans were broadly unchanged, in line with
the expectation in the 2009 Q4. The respondent financial institutions viewed that risk perception regarding general economic conditions and outlook for industry had improved continuously. In this quarter there were signs of tight liquidity conditions observed, corresponding to expansion in loan.
There had been somewhat less stringent conditions and terms for loan approval, as reflected constantly in a narrower margin for average loans to both large corporate and SMEs since 2009 Q2. In addition, respondent financial institutions reduced their non-interest charges for SME loans. Overall, approval rate for all types of corporate loans increased from the previous quarter. However,
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Figure 1: Demand for Corporate Loans
Large OverallSMEs
Realized demand for LEsExpected demand for LEs
Realized demand for SMEsExpected demand for SMEs
Realized demand for OverallExpected demand for Overall
Source: BOT's Survey on Credit Conditions, April 2010.
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2008 2009 2010 2008 2009 2010 2008 2009 2010
Figure 3: Factors affecting SMEs loan demand
Source: BOT's Survey on Credit Conditions, April 2010.
Fixed investment Working capital Inventory build-up
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2008 2009 2010 2008 2009 2010 2008 2009 2010
Figure 2: Factors affecting large corporate loan demand
Source: BOT's Survey on Credit Conditions, April 2010.
Fixed investment Working capital Inventory build-up
Factors affecting large corporate loan demand
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Report on Credit Conditions of Financial Institutions in the First Quarter of 2010 and Outlook for the Second Quarter of 2010
respondent financial institutions remained somewhat cautious towards high risk loans for all types of corporate loans, as reflected in a continued wider margin for high risk loans.
In 2010 Q2, respondent financial institutions perceived that loan demand for all types of corporate loans would increase, following both domestic and global economic recovery, which in turn, stimulated both production and investment. Respondent financial institutions anticipated a less stringent credit standards for all corporate loans, however they would remain cautious in granting loans to several sectors such as tourism and hotels, real estate, as well as textiles and garments sectors.
2. Consumer Loans (Loans to households) Demand for housing loans in 2010 Q1 increased marginally from the previous quarter,
following high competition through marketing strategies, both in terms of attractive loan conditions and quick loan approval process, improved prospects in housing market, and low interest rate. Furthermore, consumers also accelerated registration and transfer of their house purchase, in order to obtain benefits granted from the property stimulus measures, which were supposed to be terminated at the end of March 2009.
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2008 2009 2010 2008 2009 2010 2008 2009 2010
Figure 4: Credit Standards (Corporate Loans)
Large OverallSMEs
Source: BOT's Survey on Credit Conditions, April 2010.
Realized credit standard for LEs
Expected credit standard for LEs
Realized credit standard for SMEs
Expected credit standard for SMEs
Realized overall credit standard
Expected overall credit standard
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2008 2009 2010 2008 2009 2010 2008 2009 2010
Figure 5: Demand for Consumer Loans
Source: BOT's Survey on Credit Conditions, April 2010.
Housing OthersCredit card
Realized demand for housing loansExpected demand for housing loans
Realized demand for credit card loansExpected demand for credit card loans
Realized demand for other loansExpected demand for other loans
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Report on Credit Conditions of Financial Institutions in the First Quarter of 2010 and Outlook for the Second Quarter of 2010
Demand for credit card1 and other consumer loans increased, higher than the expectation in the previous quarter, following higher consumer confidence and attractive loan conditions, especially for other consumer loans. Demand for other consumer loans increased, as reflected in department stores’ sales and consumption of durable goods, especially commercial cars, after consumers had postponed their consumption in the preceding year during the economic downturn. This corresponded to a 54.8 percent expansion in domestic commercial cars’ sales.
In 2010 Q1, credit standards for housing loans continued to be loosened, following higher competition among financial institutions and continued improvement in housing market prospects. In addition, respondent financial institutions continued to ease their conditions and terms for loan approval, as reflected in a reduction in non-interest charges, and an increase in Loan-to-Value ratio (LTV). In contrast, credit standards for credit card and other consumer loans had been slightly tightened, owing to concern about credit worthiness of borrowers, cost of funding and balance sheet constraints, as well as collateral. It was noted that Loan-to-Income ratio (LTI) for credit card loans had been reduced slightly after showing an increase in the previous quarter, suggesting more cautious operation in credit card business of respondent financial institutions amid intense competition. Meanwhile, LTI and maturity for other consumer loans had been slightly loosened, compared to the previous quarter.
Looking ahead, respondent financial institutions anticipated that demand for housing loans would decrease in 2010 Q2, owing to prolonged political uncertainty, which might potentially induce some adverse effects on economic conditions in the next period. Meanwhile, demand for credit card and other consumer loans would continue to expand, following favourable trend of economic growth, strenghtened employment conditions, and improved farm income. Credit standards for all types of consumer loans were expected to remain broadly unchanged from 2010 Q1.
Economic Intelligence Team
Domestic Economic Department Monetary Policy Group
April 2010
1 This survey does not include non-banks financial institutions such as Krungthai Card Public Company Limited, Krung Sriayudhya Card Company Limited, Aeon Thana Sinsap (Thailand) Public Company Limited, Easy Buy Public Company Limited, General Card Services Limited.
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2008 2009 2010 2008 2009 2010 2008 2009 2010
Figure 6: Credit Standards (Consumer Loans)
Housing OthersCredit card
Source: BOT's Survey on Credit Conditions, April 2010.
Realized credit standard for housing loansExpected credit standard for housing loans
Realized credit standard for credit card loansExpected credit standard for credit card loans
Realized overall credit standard Expected overall credit standard
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Report on Credit Conditions of Financial Institutions in the First Quarter of 2010 and Outlook for the Second Quarter of 2010
Details of contributing factors to demand for loans and credit standards
Liquidity Industry-specificGeneral economy
Factor affecting credit standards (corporate loans)
Source: BOT's Survey on Credit Conditions, April 2010.
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Figure 7: Factors affecting credit standards (corporate loans)
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2008 2009 2010 2008 2009 2010 2008 2009 2010 2008 2009 2010
Figure 8: Conditions and Terms (corporate loans)
Large SME
Margin for normal loans
Margin for normal loans
Margin for riskier loans
Margin for riskier loans
Conditions and Terms (corporate loans)
Source: BOT's Survey on Credit Conditions, April 2010.
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Figure 9: Expected concerns on credit quality (corporate loans)
Large OverallSMEs
Expected concerns on credit quality (corporate loans)
Source: BOT's Survey on Credit Conditions, April 2010.
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Figure 10: Factors affecting housing loan demand
Housing market prospect
Other banksConsumer confidence
Factors affecting housing loan demand
Source: BOT's Survey on Credit Conditions, April 2010.
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Figure 11: Factors affecting credit card loan demand
Durable goods Loan conditionsInterest rate
Factors affecting credit card loan demand
Source: BOT's Survey on Credit Conditions, April 2010.
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2008 2009 2010 2008 2009 2010 2008 2009 2010
Figure 12: Factors affecting other loans demand
Durable goods Interest rateConsumer confidence
Factors affecting other loans demand
Source: BOT's Survey on Credit Conditions, April 2010.
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Report on Credit Conditions of Financial Institutions in the First Quarter of 2010 and Outlook for the Second Quarter of 2010
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Figure 13: Factors affecting credit standards (housing loans)
Non-banks Housing market prospect
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Factors affecting credit standards (housing loans)
Source: BOT's Survey on Credit Conditions, April 2010.
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Figure 14: Factors affecting credit standards (credit card and other loans)
General economy Credit worthiness General economy Collateral
Credit card Others
Factors affecting credit standards (credit card and other loans)
Source: BOT's Survey on Credit Conditions, April 2010.
LTV ratio Non-interest charges
LTI ratio LTI ratio
Conditions and Terms (consumer loans)
Source: BOT's Survey on Credit Conditions, April 2010.
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Figure 15: Conditions and Terms(consumer loans)
Housing Credit card Others