The decade-worst drought has served a double whammy to small business owners who are already seeing their sales declining by 30-40% from the economic slowdown.
The immediate impact from the drought on small and medium-sized enterprises (SMEs) is insignificant but the effect on purchasing power will reduce demand for their products and hurt sales, said Salinee Wangtal, chairwoman of the Small and Medium Enterprise Development Bank of Thailand (SME Bank).
Salinee: Drought will affect SMEs' sales
SMEs were hit by the pre-coup political turmoil and economic doldrums and many are in dire need of fresh funds to improve liquidity.
More than 1,000 small business owners have applied for the state-owned bank's low-rate loans totalling 15 billion baht since the scheme was launched early this month, Mrs Salinee said.
Her comments echo those made by Vallop Vitanakorn, a vice-chairman of the Federation of Thai Industries (FTI), who expects SMEs to continue to struggle as the drought worsens purchasing power.
The FTI has suggested SMEs shift their focus to neighbouring countries through border trade to offset shrinking domestic purchasing power, but now border trade may also be affected by the drought.
Mr Vallop said the growth of border trade was now projected to be only 2.5% this year from an earlier forecast of 7-10%. The drought will greatly affect the farm sector, which includes the rural border areas.
"The severe drought will be another negative factor to add pressure on SMEs. It means the situation will be even worse because the drought has cut purchasing power in the agriculture sector," he said.
The FTI last week asked the SME Bank to accelerate its approval process for SME soft loans.
Mrs Salinee said the bank had received 1,190 applications for its Policy Loan, the government's soft loan scheme for SMEs to seek loans averaging 4.5 million baht.
The programme has been unveiled in line with the government's efforts to offer fresh funding sources to SMEs to help them weather the economic slump while commercial lenders are reluctant to help them for fear of higher bad loans.
Under the five-year loan scheme, SME Bank charges borrowers interest of 4%, while the Finance Ministry subsidises another 3% for the first three years.
Borrowers are liable to pay interest at the bank's minimum lending rate, now 7%, for the fourth and fifth years for loans of no more than 5 million baht. The rate for bigger loans will depend on the bank's decision. The maximum loan is 15 million baht.
Of the 15 billion baht for the scheme, 2.25 billion has been set aside for start-ups and innovative SMEs, 3.75 billion for SMEs seeking funds for expansion, and the remainder for SMEs struggling with the economic slowdown.
President Supot Arevart said the bank was likely to reallocate loans set aside for start-ups and innovative SMEs to those hit by the economic conditions as demand for new investment was minimal.
Deputy Prime Minister MR Pridiyathorn Devakula said last week that the government was ready to approve another 15 billion baht for the scheme if the existing amount was taken out rapidly.
He said SME Bank aimed to lend 3 billion baht at its minimum lending rate for factoring facilities to provide liquidity for small construction companies.
Even though SME Bank's extension of new loans at 16.9 billion baht for the first half was still less than half of its full-year target of 40 billion, it remains confident that the target is reachable.
As of June, the state-run bank had 86.3 billion baht in outstanding loans, down by 1.7 billion from the same period last year.
Its non-performing loans (NPLs) fell to 31.47% of its total lending at the end of June from 39.9% in the corresponding period last year.
The bank swung back into a net profit of 604 million baht in the first half, compared with a net loss of 41 million in the same period last year.
Its capital adequacy ratio also increased to 9.93% from 7.07%.
Disposal of bad assets and refinancing of medium-sized borrowers to commercial lenders have been blamed for the decline in total loans, Mrs Salinee said.
Meanwhile, Mr Supot said the bank was unlikely to cut its NPLs to 20 billion baht or 20% of its total credit by the end of this year as targeted, with a possible level of 23 billion baht.