FRIDAY, March 29, 2024
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Stronger lending to SMEs expected

Stronger lending to SMEs expected

THE THAI Bankers' Association now estimates that lending to small and medium-sized enterprises could grow more than previously projected, while the rate of non-performing loans (NPLs) in the SME segment should improve under a new programme of the Thai Cr

Yesterday was the first day of the new NPL guarantee arrangement for SME loans under the Portfolio Guarantee Scheme (PGS5) offering Bt100 billion in NPL coverage, one of the measures initiated by the government to help SMEs.
Under PGS5, the TGC will absorb higher proportions of participating banks’ bad SME loans, on a varying scale.
TBA chairman Boontuck Wungcharoen said this meant the average NPL rate in the SME segment could improve from 3.5 per cent currently, while lending is expected to become more active.
According to a recent report by Fitch Ratings, asset quality for Thai SMEs has remained mostly intact. There was only a moderate increase in the NPL rate for SME loans in the first half of 2015, to 3.4 per cent from 3.1 per cent at the end of 2014, while “special mention” loans (which are delinquencies not yet classified as NPLs) were flat at 2.4 per cent.
Boontuck said that under the previous TGC loan guarantee criteria, banks lent around Bt6 billion per month, but with the new criteria, the TBA expects loan approvals to rise to Bt10 billion per month. This means that Bt100 billion worth of loan guarantees under the new criteria will be reached after only 10 months.
“There are only three months left [in 2015], so this loan guarantee [arrangement] might not fully support loan growth this year, but when the Commercial Collateral Act allowing banks to count receivables as collateral for mortgages is effective next year, SME loans in the banking sector should expand a lot,” he said. 
Yansak Manomaipiboon, chairman of the board of the TGC, said 19 banks had shown interest in joining the Bt100-billion loan-guarantee programme, so the corporation expects around 30,000 SMEs to access bank loans through this provision, resulting in Bt170 billion in new loans for the banking sector. He said SMEs that had borrowed under the previous TGC criteria would be able to apply for the new programme if their current loan guarantee is not over Bt40 million. 
Fitch believes that asset-quality risks may be masked in the short term by debt restructuring and the authorities’ initiatives to support the SME segment (such as low-interest policy loans and the credit guarantee scheme). However, asset quality could deteriorate more sharply if economic conditions weaken and as supportive measures begin to lapse.
SMEs account for the largest segment of Thai bank loans, at about 39 per cent of the total as of the end of June, while SME loan growth has been strong, particularly from 2011 to 2013, with average annual growth of about 14 per cent. 
Nevertheless, SME loan growth slowed markedly to 3.4 per cent in 2014 and 3.7 per cent in the first half of 2015 as the banks have become more cautious in line with the weak economy, Fitch noted.
According to Kasikorn Research Centre, SME lending in the banking sector this year is expected to grow by 9-11 per cent.
As of the end of June, outstanding loans in the SME segment were Bt4.15 trillion, compared with Bt3.9 trillion as of the end of last year. 
Last year, SME lending expanded by 3.9 per cent. 
Kanang Duangmanee, head of research at KResearch, said the government stimulus measures would have a positive impact on the SME segment but whether they will help drive loan growth much would depend on the process of each bank in dealing with those measures.
She said some banks previously had offered debt restructuring to their SME clients, and most of the terms for those restructuring packages have expired by the end of the year. Therefore, there might not be much change for a while in the trend of NPLs in the banking sector.
 
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