MPC worried about rising NPL, pointed out real estate as one of the most vulnerable sectors

The Bank of Thailand’s Monetary Policy Committee (MPC) are worried about rising non-performing loans and urge for more adequate and timely fiscal policies.

“The prospect of an economic downturn in 2020 led to increased vulnerabilities in the financial system,” read the edited minutes of the MPC’s meeting on March 20 which was published by the central bank on Thursday.

“The committee saw the need to closely monitor liquidity and solvency risks of households and businesses,” they added. 

As announced by the National Economic and Social Development Council last week, the official household debt to GDP ratio stands at 79.8 per cent in the fourth quarter of 2019 – the highest in 14 quarters (or three and a half years.)

The total outstanding for household debt reached 13.47 trillion baht, up 5 per cent from the same period in 2019.

Non-performing loans reached 156.28 billion baht in the first quarter of 2020, up 2.9 per cent from the previous quarter and accounted for 3.23 per cent of the total outstanding within the financial system.

The MPC expects the number of households and businesses facing debt-servicing capability risks to rise, especially after the phase-outs from government relief measures. 

For businesses, the most vulnerable sectors are hotels, restaurants, airlines and the petroleum industry, the latter already being affected by lower oil prices. 

The MPC also believe the real estate sector will experience a decline in both domestic and external demand. Developers have already postponed new project launches and introduced greater promotions to reduce excess supply. 

The committee pointed out that most developers have raised funds through commercial bank loans and corporate bonds. This is worrisome as the real estate sector is highly interconnected with other economic sectors such as construction.  

“Real estate conditions, therefore, need continued monitoring,” the minutes read.

“In case of widespread defaults, there would be a material impact on lenders… which could, in turn, deteriorate economic activities,” they added.

The MPC recommended the BOT and other related agencies to prepare measures to cope with increasing risks. 

Such measures could include establishing mechanisms to standardize and expedite multi-creditor debt restructuring and to expand the roles of asset management companies in absorbing non-performing loans.

CBRE Research

According to CBRE Research, the pandemic has affected leasing and investment demand in Asia-Pacific’s real estate sector during the first quarter of 2020 as the global recession looms. 

They said that most leasing deals were completed prior to the COVID-19 outbreak and the introduction of lockdown measures. 

The large supply of new offices, combined with a weak net absorption of 11 million square feet NFA (net free area) in the first quarter of 2020, has pushed Asia’s office vacancy up by 12.7 per cent, from quarter to quarter. 

On the other hand, Asia-Pacific’s Grade A rent fell by 0.6 per cent in the same period of time. 

Rental prices in Asia have also dropped by 2.4 per cent from quarter to quarter due to lockdowns in many countries which is the sharpest drop since the Global Financial Crisis in 2008. 

Warehousing demand remained firm, supported by resilient e-commerce demand and a surge in last-mile delivery requirements. This means that rent within the real estate sector has remained unchanged. 

However, Asia-Pacific’s commercial real estate investment volume fell to US$22 billion, the lowest quarterly total in nearly three years. 

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