Economy could face further problems from bad SME debts, seminar told

Supavud Saicheua, managing director of Phatra Securities, told a seminar held by Bank of Ayudhya yesterday that while earlier fears had been over household and credit-card debts, concerns had lately expanded to small and medium-sized enterprises as they have had trouble selling their products.

Hence, he said, if the prolonged drought and lacklustre export growth became new negative factors hitting the SME sector, problems could be widened for the banking sector, which could become even stricter in lending to the business sector. This could lead to a “small credit crunch” in the economy, he said.

“Thus we’re worrying,” said Supavud, who was recently in the running for governor of the Bank of Thailand.

He said that while the official non-performing-loan (NPL) figures did not show a big increase, so-called special-mention loans had been increasing remarkably. Special-mention loans are those on which borrowers have not paid interest for one or two months but had not yet reached the three-month definition of NPLs.

“Now banks are trying to help these firms manage their special-mention loans. If in the next three to six months they become NPLs, it will make the banks more cautious on lending or cut it back, and that will hurt the economy,” he said.

Supavud said he expected the BOT’s Monetary Policy Committee (MPC) to cut the key interest rate at least one more time from the current 1.50 per cent to 1.25 per cent, as early as its next meeting on August 5, to address the downside risks of the economy.

Moreover, he said the negotiations on the Trans-Pacific Partnership agreement were likely to be concluded at the end of this month, and that could affect Thailand, which is not a party to the talks. This is because Japanese and other investors could move more of their production bases from Thailand to Vietnam, which hopes to be part of the US-led partnership.

Sethaput Suthiwart-Narueput, executive chairman of the Thailand Future Foundation and a member of the MPC, told the seminar that private investment held the key to Thailand’s economic recovery but investors needed to regain their confidence and the government’s policies had to be more certain.

“We still don’t see the clear direction of government policies. An example is the opening of the 21st round of petroleum-concession [bidding], which has been changed from time to time,” he said.

Sethaput said that while the chances of an upside gain to an economy from an adjustment of interest rates were limited, downside risk was normally high if a country made a mistake in monetary policy. Therefore, “stability is more important than stimulus”.

Bill Barbour, director and client portfolio manager for the equity team at Eastspring Investments (Singapore), said Thai and Philippine stocks were in a high valuation period at the moment.

“We find it difficult to find Thai stocks to put into our portfolio,” he said.

The three speakers unanimously agreed that Greece’s problems were not a major concern for the global and Thai economies.