SME Bank draws up plan to get out of red

The bank has losses of Bt2.2 billion and Bt22 billion in non-performing loans. The NPLs are expected to reach Bt30 billion or about 30 per cent of total outstanding loans.
Pichai Chunhawachira, chairman of SME Bank’s rehabilitation board, said it aimed to revive the bank’s operations in accordance with the Bank of Thailand’s standards and return it to profit within three years.
The rehabilitation board has spent a month drawing up a preliminary framework for the rehabilitation plan, he said, and expects to complete its consideration of it within 90 days.
In parallel with this planning, some problems, particularly bad debts, were being solved through loan classification, debt restructuring and liquidation of assets awaiting sale.
“Bad loans need to be solved urgently. Bad debts stayed at Bt15 billion at the beginning of this year. But they increased to Bt22 billion in August and are estimated to rise to Bt30 billion, or 30 per cent of total outstanding loans, by this year-end. This situation has resulted from extension of non-qualified loans, and we will look through them,” Pichai said.
At present, SME Bank’s outstanding loans stand at Bt98 billion. Its assets have remained at Bt105 billion. The rehabilitation board has also set a new loan target for the bank. Next year, SME Bank is required to extend Bt26 billion in new loans, focusing on small borrowers. The loan-approval process is set for 45 days.
“If we take good care of customers, our performance should be satisfactory,” Pichai said. “The differential between interest received and expended should widen from now on. The current difference is only 1.6 percentage points, and this is not enough to cover expenses.
“The bad-debt level per year is also high. In general, a commercial bank’s bad-debt level is about 2 per cent of total loans, while SME Bank’s is 4 per cent. We will try to curb the bad-debt level each year.”
Currently, the bank’s capital adequacy ratio is very low, at 5.6 per cent. In the first eight months of this year, it suffered a loss of Bt2.2 billion while extending new loans at lower than its target level.
SME Bank extended only Bt21 billion in new loans, against its target of Bt26 billion.
“We aim to bring up the capital adequacy ratio to 8.5 per cent. If we do nothing and request a capital increase from the Ministry of Finance, we will need billions of baht. But we will improve loan quality, and that may reduce the burden on the ministry.
“However, if [the bank’s] capital is not adequate, we may need to ask for a capital increase,” Pichai said.