Bank of Thailand weighs SME lending requirements

Bank of Thailand weighs SME lending requirements

The Bank of Thailand is considering whether to allow banks to demand additional collateral to back loans extended to small and medium-sized enterprises (SMEs) that are unable to fully comply with the single account scheme practice.

The move is to help SMEs that are not ready to comply with the new lending requirements to access loans from financial institutions, said Chakkrit Parapuntakul, president of the Federation of Accounting Professions (FAP).

Under the single account scheme, the central bank requires banks give greater consideration to financial statements submitted to the Revenue Department when considering SME loans, starting next year.

But the requirement has stoked concerns that the single account scheme will lessen access to finance for most SMEs, which tend to use more than one financial account and submit the smallest one to understate or avoid tax.

The central bank was reported to be sticking to the Jan 1 implementation date for requiring banks to use financial accounts submitted by SMEs to the Revenue Department for loan approval, but a three-year grace period for full compliance to alleviate the impact to SMEs may still be offered.

Commenting on the planned implementation of International Financial Reporting Standard 9 (IFRS 9), which has been postponed for one year to January 2020 in Thailand, Mr Chakkrit said the country should adopt local rules such as letting banks fully set aside loan-loss provisions in the first three years for loans extended to SMEs that turn sour to prevent the impact on small-business operators.

The new accounting report standards that require banks to immediately set aside the entire provision for credit loss would lead to more difficulty for SMEs in accessing borrowing from financial institutions, as they would be reluctant to lend to SMEs or charge them higher interest in return.

The FAP recently decided to push back the deadline to implement IFRS 9, which will replace International Accounting Standard 39, to 2020 for commercial banks and 2022 for specialised financial institutions to prevent harming SMEs.

The main difficulty of IFRS 9 for Thai financial institutions is that each customer's creditworthiness is rated differently across financial institutions, so the benchmark is required, Mr Chakkrit said.

Before the deadline, financial institutions will run the IFRS model in parallel with current accounting report standards to find out the volume of additional loan-loss provisions required to comply with the new standards, he said.

The FAP will launch free accounting software for SMEs, but interested SMEs must sign up as associate members.

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