BANKING

The Finance Ministry has approved the business rehabilitation plan for the Small and Medium Enterprise Development Bank of Thailand (SME Bank), forcing it to lower its lending ceiling to 15 million baht per loan.

"This is a good solution to prevent high non-performing loans (NPLs) in the future, which should help the bank become a genuine source of funds for SMEs," said Areepong Bhoocha-oom, the finance permanent secretary.

However, the new ceiling for loans will apply to new clients only, while existing clients can still borrow up to 200 million baht.

The previous limit of 200 million baht per client was later extended to 500 million baht, which caused a major problem for SME Bank, as one-third of its NPLs are large debtors that borrowed more than 200 million.

Mr Areepong said SME Bank will no longer take refinance deals from other banks to prevent more high-risk debtors.

Pinyo Tanwiset, an adviser to the deputy finance minister, said about 100 clients with more than 200 million baht in debt became NPLs, with combined debt of nearly 9 billion baht.

SME Bank reports 32 billion baht in bad debts, which is more than 30% of outstanding loans of 97 billion baht.

Naris Chaiyasut, director-general of the Treasury Department, said under the NPL reduction plan the bank aims to lower the figure by 10.7 billion baht this year and 8-10 billion in both 2014 and 2015.

Another major problem is SME Bank's capital-adequacy ratio, which sits at 1%, far below the 8.5% required by the Bank of Thailand.

Recently the bank was allowed to raise 555 million baht, which would increase its ratio to 4%.

If it can cut NPLs as planned, the ratio will improve to 7% this year.

In addition, if SME Bank is allowed to raise another 1 billion baht this year, its ratio will shoot up to 10%.

The rehabilitation plan requires the bank to set up a core banking system to improve its credit approval efficiency. Another change is it must hire more debt collection staff.

This year, SME Bank plans to expand its loan portfolio by 19 billion baht, up 5% from last year, with hopes of its first net profit of 100 million as well, a jump from a loss of 2 billion in 2012.