TCRB to focus on small businesses
After restructuring its management team last year, Thai Credit Retail Bank (TCRB), the only retail bank in Thailand, says it is focusing on small businesses (SBs) as its core clients, and reducing its dependence on mortgages and new auto loans, as it seek
Managing director Roy Agustinus Gunara, who was promoted as the bank’s new chief in August last year, said that from now on, the bank will concentrate on building infrastructure – especially human resources. TCRB has 590 employees and will recruit around 260 more, mostly in sales and marketing.
TCRB was founded to provide retail loans to lower-income people. When such clients are looking to buy residences and are rejected by other banks, TCRB has in the past allowed these customers to get home loans. Mortgages eventually came to account for the lion’s share of the bank’s portfolio.
At the end of last year, its retail loan portfolio was Bt7.89 billion (comprising mostly mortgages), followed by hire purchase portfolio of Bt4.22 billion, SME loans of Bt3.7 billion, gold retail loans of Bt1.56 billion and small business (SB) loan portfolio of Bt557 million.
Gunara said the bank’s rates for mortgages and new auto loans are not competitive and the furious competition has hit its margins.
"The cost of funds is low. We cannot give loans that have no margin while big banks, of course, can offer [mortgages and hire purchase]. So we will focus solely on SBs, SMEs [small and medium-sized enterprises] and gold loans, which are niche markets – especially gold loans, in which TCRB is the only player, with a portfolio of Bt1.5 billion, which is still growing," he said.
He said TCRB learned that small banks are unable to compete with major banks, so it has to find a market segment in which it can compete. For mortgages, it will maintain existing customers and scale up its small-business portfolio.
The important thing in building the scale of SB customers is to seriously train sales and marketing staff in terms of how to build and make strong relationships with them, Gunara said.
"We require special knowledge and understanding of this market; we have to train and build expertise and skilled staff to capture this segment," he said.
About 95 per cent of total businesses in Thailand are SBs with 1-2 employees. These grassroots small-businesspeople need to have good discipline because they need money to build their businesses, unlike consumer finance, in which customers require money for consumption.
The definition of a small business is a business whose owners have no financial statements. This kind of group might be a risk for other banks, but they are the target of TCRB, which bases loan approval on their earning ability.
Gunara cited the case of a motorcycle repair shop, which other banks are unable to loan to. TCRB does because it considers the skill of the motorcycle repairman as an asset.
"SBs are not high-risk businesses for TCRB because the bank requires collateral such as small land plots or equipment, but this collateral is sometimes not ideal because the value of the assets is very small. So, we have to build knowledge in this segment and learn about the earning ability of customers. We can offer credit lines up to 200 per cent of collateral value," he said.
In the first three months, the bank’s outstanding loans from SB customers was Bt1 billion, up from Bt557 million at the end of last year. The bank acquired 500 accounts from 267 accounts last year. Only two customers have become non-performing loans (NPLs) during the first three months.
TCRB targets total SB portfolio of Bt5 billion by the end of this year, Gunara said, adding this limited amount is the reason this market is not the main focus of big banks.
The "ticket size" is Bt200 million-Bt300 million for this kind of customer, but the credit lines are limited to not more than Bt500 million, he said.
Over the next three years, the bank’s portfolio will reach Bt60 billion, up from Bt17.95 billion at the end of last year, Gunara said, with SBs being the key driver of the lending.
Gunara said SBs will become the major portfolio instead of retail lending. The target over the next three years is for this portfolio to account for 60 per cent of the total portfolio of Bt60 billion. NPLs should not reach more than 3 per cent.
Gunara said TCRB this year will open four branches, two of them in Surat Thani and Nakhon Ratchasima provinces. It is the first time TCRB will have branches in the provinces. The SB segment is located upcountry, but Bangkok is the main market for funding.
"Most lending customers are located upcountry. We, therefore, have to prepare infrastructure well in preparing to expand additional branches upcountry," he said.
This year, TCRB targets lending growth of 25 per cent to Bt6 billion. Gunara said the figure is not aggressive because the amount is small. Therefore, it has to build a healthy scale, especially among small businesses, this year.
He said that microfinance is not its target segment right now, but the bank is carefully considering entering this market once it has sufficient infrastructure to support its business growth over the next three years.
Microfinance customers have no collateral, posing higher risk than SB clients, Gunara said.
