Banks still ready to lend to SMEs but warn of effects of euro-zone crisis, minimum wage hike on firm

Trairong Butragaht, executive vice president for the strategy and product division of Siam Commercial Bank, yesterday said SME lending across the banking industry in the first half of the year had risen by 6 per cent, due mainly to healthy domestic consumption and government measures.

SCB alone experienced SME loan growth of 12 per cent during the period.

Lending in the second half is expected to continue to grow, especially among SMEs that do business locally, but SME exporters and importers should be aware of a slowdown in exports and the indirect effects of the European Union’s financial crisis, he said.

SME exporters account for 10 per cent of SCB’s lending portfolio.

Trairong said the bank would continue to look favourably when it came to providing credit to SME exporters, but would be more disposed to those with a trading track record of at least five years, as such enterprises were more likely to be able to handle the volatility.

Pipavat Bhadranavik, first senior vice president of Kasikornbank, said that although SME business in the second half is expected to be higher than in the first six months, supported by domestic consumption and business expansion, those SMEs directly or indirectly doing business in the US and the EU should seek other markets in order to diversify risks.

At KBank, the proportion of SMEs that export to the US and the euro zone has declined by as much as half from 20 per cent of the overall loan portfolio of Bt430 billion, he said.

Meanwhile, in order for SMEs to mitigate against unexpected risk, the bank continues to attempt to convince clients to undertake foreign-exchange hedging. It also warns trading SMEs about speculating in the forex market, he said.

While KBank will not tighten its criteria for providing loans to SMEs exporters and importers, it will advise them about how best to handle international transactions and payments in order minimise the risk of default, he added.

The bank is also promoting the Asean Economic Community among SMEs that are not focused on the European and US markets, because the region is becoming an increasingly significant market for Thai businesses, the executive said.

Pipavat also said that hiking the minimum daily wage to Bt300 would lead to labour migration, therefore operators should secure the loyalty of employees by offering welfare packages. They should also increase the use of machinery in order to manage costs.

The bank expects more SMEs will require loans for purchasing machinery so that they can offset rising labour costs and enhance productivity.

Siridej Aungudomsin, executive vice president of Bangkok Bank, said the bank is suggesting that SME exporters should seek out emerging markets and manage production costs to compensate for the rise in daily wages.

Surachai Chitratsenee, SME Banking Group head at CIMB Thai Bank, said the full effect of the increase to Bt300 per day would hit SMEs in the second half of the year. If SMEs cannot adapt accordingly, it could influence their ability to repay debt.

However, CIMB believes its full-year loan-growth target of 20 per cent is achievable, even though growth in the first half has been lower than expectations.

He said the bank would focus more on medium-sized enterprises with revenue of Bt400 million to Bt500 million, as such companies are generally expanding, especially renewable-energy businesses.