SME loan extension is expected to rise in the final three months as the state-owned Thai Credit Guarantee Corporation's (TCG) 80-billion-baht guarantee scheme builds up bank confidence.
The higher cap guarantee coverage for bad loans under the TCG's new portfolio guarantee scheme (PGS) would help restore banks' confidence in lending to small business operators, said Boontuck Wungcharoen, chairman of the Thai Bankers' Association.
The new scheme, running from Sept 1 to the end of next year, provides credit guarantee coverage at 70% of non-performing loans (NPLs) for up to 30% of the PGS, with lenders taking responsibility beyond that. The TCG is also waiving its credit guarantee fee for the first year, while lenders joining the new PGS can charge borrowers a maximum of 2% on top of the minimum lending rate.
The TCG provides full coverage for NPLs of up to 18% for SME loans under the traditional PGS.
Small and medium-sized enterprises (SMEs) are adversely affected by the stuttering economy as banks are reluctant to lend to them.
Deputy prime minister Somkid Jatusripitak is targeting SMEs with new assistance measures, with economic ministers approving 136 billion baht in economic stimulus packages to help low-income earners, particularly in rural areas.
In a related development, the Joint Standing Committee on Commerce, Industry and Banking proposed yesterday that the government maintain the tax cuts for SMEs implemented by previous economic ministers in order to draw more SMEs to the formal tax system and standardise their accounting, allowing them easier access to financial sources.
The committee also agreed to encourage cross-border trade to offset the dismal export outlook. Cross-border trade is estimated to reach 2 trillion baht in the next two years from 1.4 trillion. To facilitate the goal, the committee proposed establishing SME outlets along border provinces and urged provincial commercial offices to play a greater role in supporting cross-border trade with proactive strategies.
"Given the promising prospects of neighbouring economies, trade with them provides Thailand a great opportunity. Thai products have gained popularity in these markets," said Mr Boontuck.
The committee forecast foreign tourist arrivals to Thailand dipped by 25% last month following the Bangkok bombing on Aug 17, but the situation is expected to return to normal within two months. Tourism and government spending are expected to be the key contributors to economic growth, with 31% year-on-year growth in foreign arrivals through July.
The Asian Development Bank's SME Finance Monitor 2014 reported SMEs played a critical role in driving the Thai economy, accounting for 97.2% of total enterprises at 2.76 million, up 1.2% last year. Among business sectors, 43.5% of SMEs operated in wholesale and retail trade, which includes automotive repair, followed by the service sector with 39.1%. There were 11.4 million people working in SMEs in 2013, accounting for 81% of the total workforce.
SMEs accounted for 37.4% of GDP in 2013.
SME loans outstanding for both Thai commercial banks and specialised financial institutions amounted to 5.51 trillion baht in 2014, with banks making up 4.44 trillion. SME loans accounted for 34.5% of total commercial bank loans in 2014, with their share to GDP at 36.6%.
The most active SME sectors seeking commercial bank loans were trade at 29.6% of total SME loans, service at 25.9%, and manufacturing at 22.3% last year. Since 2010, the share of manufacturing in SME loans has been gradually decreasing, while demand from the service sector is expanding.
Funding demand from SMEs comes mainly from their need to acquire working capital.