SMEs look to refinance loans
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MANY SMALL and medium-sized enterprises have asked to have their loans refinanced with other banks despite higher interest rates, because prevailing economic conditions are not supportive for them getting overdrafts from their current creditors.
Vipon Vorasowharid, first executive vice president and head of Siam Commercial Bank’s (SCB) business banking group, said the economic downturn had forced banks to tighten up on the provision of loans, as a result of which many SMEs had to look at refinancing as a solution to their funding needs.
“What we are worried about is that they are not subject to any conditions when refinancing, [and that they are looking to such institutions] even though the interest rates for refinancing are not lower than those at the banks where they are borrowers.
“The lack of [refinancing] conditions tells us that they could become non-performing loans in the future. Therefore, all banks should offer their full support to their SME clients,” he said.
SCB this year has relaxed its lending conditions as a means of helping SME customers, such as a reduction in the debt-coverage ratio from 1.5 times to 1.2 times in order to leave them with sufficient cash flow to cover their loan repayments, Vipon said.
Udomsak Rojviboonchai, first senior executive vice president of Krungthai Bank (KTB), said his bank had received refinance applications from SME borrowers at other banks, but would provide lending based on the risk profile of each business.
In general, large-sized banks will be the priority choice for borrowers intending to refinance their loans, he said.
Medium-sized SMEs with annual turnover of Bt20 million and above, he said, were more active in requiring lending and having loans refinanced than other SME segments.
However, KTB is not concerned about the size of these businesses, as it can check their debt-repayment record via the National Credit Bureau, he said.
While the bank has seen lending by medium-sized SMEs expand every month, its overall SME loan growth this year is expected to be lower than previously forecast because of the current economic conditions.
Vipon said SCB had not seen any positive signals in the second half of the year that would improve SMEs’ prospects, and that the bank was therefore continuing to offer debt restructuring to affected SMEs.
As the immediate prospects for SMEs – and smaller ones in particular – are not bright, the bank hopes that the government’s coming stimulus package will help shore up SMEs, the executive said.
However, the government’s measures would not be efficient if they fail to help SMEs undergoing debt restructuring, he warned.
Small businesses classified as having a special-mention loan or a non-performing loan should qualify for assistance as well as normal borrowers, otherwise they would not be able recover as quickly, Vipon said.
SCB, meanwhile, offers its full help to SMEs affected by the downturn if they intend to run their business and use borrowed money for the right propose, he said.
However, the bank has found that some affected SMEs receiving its help used the loan to repay informal debt, and SCB was unable to help them any further in such circumstances.
“Some SMEs tell us that they require a loan for buying raw materials or machinery to meet orders, but we later find their production capacity is unchanged, meaning that they have used the funds for other purposes. Some of these SMEs accept that they had no choice but to use the bank lending for paying off informal debt,” he said.
“It is hard for SCB to achieve the original target of double digit-growth in the SME sector, and we believe we should now achieve single-digit growth instead,” Vipon said.
