Bangkok--20 Jul--Fitch Ratings
Fitch Ratings has today affirmed the Support rating of Thai-based Government Housing Bank (“GHB”) at ‘2’. Given that GHB is a wholly-owned state institution and has a public policy role providing low cost housing finance, Fitch believes there is a high probability that state support would be forthcoming, if necessary. Any change in the level of government ownership or support could affect the bank’s ratings.
GHB has the highest market share — more than a third — of mortgage finance in Thailand, although its portfolio is concentrated in the lower to middle income market.
While over half of GHB’s exposure is to the generally lower risk residential property segment, the collapse in Thai property values and the economic recession significantly affected its financial performance between 1997 and 1999. Since 2000, the bank’s performance has gradually improved due to lower provisions and funding costs, as well as a recovery in the country’s residential property market.
Nonetheless, GHB’s net profit fell to THB4.3 billion in 2005 due to higher funding costs and provisions despite strong loan growth of 19%. The net interest margin narrowed to 1.5% as funding costs rose more sharply than interest income. GHB’s margin appears low when compared with that of local commercial banks due largely to its relatively low lending rates and higher funding costs. The bank’s policy is not to maximise profitability but to provide housing loans at reasonable rates. GHB’s margins are likely to continue to be under pressure in the rising interest rate environment. Its low cost-to-income ratio of about 30% reflects its relatively small branch network.
Impaired loans stood at THB50.5bn (10.3% of total loans) at end-2005, down from THB63bn (15.3%) at end-2004 due to the sale of impaired loans (THB8.7bn) and debt restructuring. Loan loss reserves stood at THB27.1bn or 53.6% of impaired loans, which appears lower than the industry average, although this could be due to higher collateral coverage.
GHB’s equity to asset ratio was 4.4% at end-2005 while its Tier 1 capital ratio was 10% of risk-weighted assets, which appears adequate.
GHB was established in 1953 under the GHB Act to provide concessional mortgage finance to low to middle income households and civil servants. The GHB Act gives the MOF the power to exercise general supervision of the bank. The cabinet appoints and removes the board of directors, which has the power to supervise and conduct the bank’s business. GHB has 122 branches. The government has expanded the scope of its operations over the past several years, though GHB’s main role is to provide mortgage finance to the low to middle income market.
Contact: Chaiyapat Paitoon, Vincent Milton, Bangkok +662 655 4762/4759; David Marshall, Hong Kong +852 2263 9963.