GSB setting aside B10bn for repurchase loan market

GSB setting aside B10bn for repurchase loan market

Government Savings Bank (GSB) is set to allocate 10 billion baht worth of capital to expand into the repurchase loan market to help small and medium-sized enterprises (SMEs) with liquidity shortages.

The bank is preparing to roll out a new loan product tailored for the repurchase business of SMEs.

The product has been approved by the Bank of Thailand. It is expected that the product will be launched in early November, said GSB president and chief executive Vitai Ratanakorn.

The new offering is one of the bank's financial products aimed at supporting SMEs that lack financial liquidity and are unable to use existing securities in order to seek loans from financial institutions, as this contradicts the lending criteria set by the Bank of Thailand, Mr Vitai said.

SMEs have therefore opted to seek loans from the repurchase business, which operates in the informal loan segment.

SME business operators usually purchase land plots when they make profits. They have been experiencing a liquidity shortage as the Covid-19 pandemic drags on for an extended period, contributing to a plunge in their share prices, Mr Vitai said.

These business operators cannot use their lands as securities to seek loans with banks, since the central bank's regulations stipulate that borrowers' credit must be checked with the National Credit Bureau (NCB) and undergo a debt repayment analysis.

Most SMEs' credit records do not meet the qualifications for loan approval, Mr Vitai reiterated.

The conditions for loan approval by informal repurchase businesses are also harsh, he said.

For instance, a land plot owned by an SME has an appraisal value of 100 million baht, whereby the company wants cash in hand at only 10 million baht, but the condition stipulates 15 million baht in the loan approval contract.

Of the 15 million baht, 5 million baht is considered as a lending fee and the loan amount comes with a 30% interest.

GSB will only engage in the repurchase loan business in a certain period or during the Covid-19 crisis to help struggling SMEs, Mr Vitai said.

"Per our discussion with the central bank, we will not analyse revenue or check SMEs' credit with the NCB, because we will not be able to offer loans once we do so," he said.

The term of this loan product must only be used as liquidity for business operations, as opposed to personal consumption or spending.

Initially, the redemption period of securities is within three years and credit is provided up to 70% of the appraised value, with interest capped at no more than 7%.

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