Lenders ready, willing and able

BUSINESS FOCUS: CONSUMER CONFIDENCE

While consumers may be ambivalent about the direction of the economy, for bankers, the issue is clear - credit risks have definitely fallen and signs of improvement are clear.

Among the state-owned banks, the biggest lenders to lower- and middle-income rural and urban consumers, executives say the fact that loan demand continues to rise even as non-performing loans fall is a clear sign of economic recovery.

Leaders of three state banks - the Government Savings Bank, the Government Housing Bank and the Bank for Agriculture and Agricultural Co-operatives - all agree that credit conditions have improved considerably in recent months.

The three banks are responsible for as much as 90% of the government's overall lending target of 927 billion baht for the year by state-owned financial institutions.

Finance Minister Korn Chatikavanij said last week that authorities now expected new state bank lending this year to rise to more than 1.2 trillion baht, as credit demand for both households and companies has jumped with the economic recovery.

Lersuk Chuladesa, the GSB president and chief executive, said the bank extended new loans for the year to date of 300 billion baht, already exceeding its full-year target of 242 billion. Net loan growth, after counting debt repayment, is around 180 billion baht for the year to date.

Non-performing loans, meanwhile, have fallen to 2.6% of total outstanding loans compared with 3.3% at the end of last year, reflecting a decline in credit risk as the economy has improved. Bad loans for the GSB's People's Bank microfinance programme have fallen to 5% of total loans, just half the levels seen at the beginning of the year.

Luck Wajananawat, the president of the BAAC, agreed that overall lending conditions had improved from earlier this year.

The state bank, the primary source of credit for farmers, has seen non-performing loans fall to around 7.5% to 8% of total credit compared with 10% in 2008.

Mr Luck said the decline in bad loans reflected the improved fortunes for many farmers with the rise in key crop prices, including rice, tapioca and corn.

"And as the economy continues to improve and consumption rises, it should only lead to further gains for local farmers," he added. The BAAC has a lending target of 470 billion baht for the year ending March 2010, with 305 billion lent to date.

Khan Prachuabmoh, the president of the Government Housing Bank, said the improvements in the economy could be seen across all income segments.

Competition among local banks in the mortgage market, meanwhile, will only intensify in the last few months of this year, with lenders now more willing to lend due to confidence that the worst of the crisis has passed.

Among non-bank consumer finance companies, one senior executive at Aeon Thana Sinsap said consumer confidence and purchasing power had definitely improved over the past three quarters.

Job losses over the course of the economic crisis have been minimal, a key factor helping consumer confidence remain steady.

Spending, however, may remain depressed not due to economic trends, but domestic political uncertainty, the executive said, pointing to weak retail sales figures in October.

For Aeon Thana Sinsap, non-performing loans have fallen to 2.5% of outstanding debt compared with 3% at the beginning of the year. Credit demand through cards and hire-purchase loans have improved, although demand for personal loans has remained weak. The company has 2.96 million accounts, half of whom live outside of Bangkok, with clients reporting monthly incomes ranging from 7,000 to 30,000 baht.

Thawatchai Thitisakdisakul, a senior executive vice-president at Krungthai Card, agreed that consumer spending and confidence was improving.

KTC, a unit of Krung Thai Bank and the country's leading consumer finance company, aims to expand its card base by 150,000 in 2010 from 1.6 million cards outstanding now.