State-owned Thai Credit Guarantee Corporation (TCG) will provide its first direct credit guarantees worth 1.5 billion baht to small and medium-sized enterprises (SMEs) later this month, its chief says.
Under the service, TCG will issue letters of guarantee to SMEs who apply for the loan guarantee for submission to financial institutions for loans, president Rak Vorrakitpokatorn.
The practice is in line with TCG's planned direct-to-customer approach, but diverges from the conventional approach that has SMEs ask for loans at banks, then the lenders require them to apply for credit guarantees at TCG.
To qualify for TCG's direct guarantee service, SMEs must have been in business for at least five years and have steady income with three consecutive years of net profit.
The agency will offer up to 10 million baht in credit guarantees per SME.
TCG has already selected three banks of the 18 total, both commercial and state-owned, to participate in the direct guarantee service, he said.
As SMEs whose loans TCG will directly guarantee are considered prime customers, the state agency will offer to be responsible for the first 70% of the soured loan portfolio, compared with 30% under the government's sponsored Portfolio Guarantee Scheme 8 (PGS8), said Mr Rak.
TCG will absorb non-performing loans without requesting state compensation.
The annual fee for the direct credit guarantee service will be 2.5-3% of loan guarantees, above the 1.75% TCG charges annually.
As TCG is targeting SMEs who need emergency funds with this scheme, applicants are more likely to pay the higher rate, he said.
These SMEs need urgent loans as their collateral is extended, while lenders are more cautious about making loan extensions, given the high rejection rate of 40%, said Mr Rak.
Even though TCG is ready to provide full credit guarantees for SMEs who have business potential, the Finance Ministry's policy does not allow TCG to compete with financial institutions, he said.