CIMB Thai turns spotlight on lending to small operators
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Small bank shuns fierce competition in medium and large-sized business segment
CIMB Thai Bank, the local subsidiary of Malaysia’s CIMB Group, has made it the priority task of its commercial-banking group next year to actively tap small business operators in a bid to drive yield and avoid intense competition in the medium and large-sized enterprise segment.
As a small bank in Thailand, having relatively few branches and a brand that is less well known than its rivals is a disadvantage. CIMB Thai therefore needs to offer higher interest rates for its funding products to support its lending, resulting in a higher funding cost than its peers.
The small-business segment can help the bank achieve a healthy margin, but it currently has few such customers in its commercial-banking portfolio, said Surachai Chitratsenee, head of the commercial-banking group at CIMB Thai.
Surachai said the division had previously focused more on medium and large-sized enterprises, which form a strong base for the institution.
Such businesses contribute non-interest income from credit insurance products and cash management. The bank has, therefore, had to turn its focus to a segment that helps improve its return on equity apart from fee income – and small business is the answer, he said.
He added that as a small bank, CIMB Thai has more flexibility in helping small and medium-sized enterprises, and especially smaller companies. It decided, therefore, to offer “quick approval with finished-loan programmes” as a key strategy in this segment.
“Pricing is not our strategy, because our funding cost is higher than for the larger banks. We have to put together different programmes in encouraging small operators to use CIMB Thai’s products and services,” said the executive.
Higher yield
The bank’s yield from small business should be higher than 4 per cent, he said, adding that the net interest margin next year should expand by 1-2 basis points to 3.8 per cent after focusing more on small enterprises.
Medium and large-sized enterprises, for which CIMB Thai offers credit lines of Bt20 million-Bt100 million and above Bt100 million, respectively, currently generate a yield of 3.5 per cent.
At present, small business customers account for less than 5 per cent of the 2,000 SME customers serviced by the commercial-banking group.
CIMB Thai approached Jiratchyuth Amyongka, the former head of SME Banking at Thanachart Bank, who agreed to oversee the bank’s small business, including credit-scoring development to tap into this segment.
Surachai said that for new small-business customers, the bank would grant a credit line of Bt10 million, while existing customers in this segment would be allowed a credit line of Bt20 million.
Jiratchyuth, who has been appointed senior executive vice president for the commercial-banking group, said competition for small business operators’ custom was not intense, as there are around 3 million small enterprises across the country, nearly 500,000 of which have not yet sought a bank loan.
The bank will focus on small businesses that have been up and running for more than two years, as experience shows that they have a high chance of survival and could be upgraded to medium-sized companies after being in business for five years, he said.
Banking competition in the overall SME sector, however, is still intense and the bank has to be particularly cautious in granting loans amidst the economic slowdown, said Surachai.
CIMB Thai’s lending growth this year will, therefore, be lower than the targeted level. Outstanding lending for commercial banking will now come in at Bt45 billion, against the previously targeted Bt47 billion-Bt48 billion.
“We are satisfied with our growth even though loan growth is lower than the target, because we are able to expand from fee income, which has increased by 20 to 30 per cent, against 10 per cent for interest-income growth,” he added.
