Labelling himself both an undertaker and merchant of risks, Rak Vorrakitpokatorn has a mission to help comatose small and medium-sized enterprises (SMEs) survive profound hardships during this major economic crisis.
Given the relentless pandemic, the momentum of this year's loan guarantees could surpass 200 billion baht from last year's total of almost 150 billion, said Mr Rak, president of state-owned Thai Credit Guarantee Corporation (TCG).
The mentality of SME owners when the first wave of Covid-19 emerged was uncertain as to whether to have TCG as a loan guarantor.
But the new outbreak has shifted their attitude, as help from the TCG for loan guarantees is seen as a do-or-die situation. This is in part because SMEs can receive up to 70% of the total amount of the loan guarantee.
For instance, if an SME receives a loan worth 10 million baht, the TCG will insure 7 million.
In the past banks were not keen on the loan guarantee process because customers need to sign another contract, said Mr Rak. But now loan guarantees seem like an obligatory duty, with TCG the first choice regardless of whether a business is suffering, he said.
The lowest credit score issued by TCG is 65, in contrast with a minimum of 70 issued by banks.
"We try to loosen the credit scoring by another level. In the past, there wasn't any credit scoring system in place at the TCG. Whatever SMEs submitted we approved. It could be deceiving and we never checked anything, only examining the ID card number, full name, address for businesses as defined under the Small and Medium Enterprises Promotion Act," said Mr Rak.
"We didn't examine their business conditions. There was a case where the TCG guaranteed loans worth 100 million baht, but never checked whether this business existed. This was because the organisation thought it used public funds to operate and constructed a portfolio. The organisation thought it was safe as long as the claims didn't exceed the guarantee limit."
Of 352 total employees, there are still only four credit analysts at the TCG.
"I plan to employ more credit analysts," he said.
SME 'CORPSES'
Some people think Mr Rak intends to turn TCG into a financial institution.
"Yet I never had this idea in my head. The TCG is rather a 'broker' for banks. At present, the biggest insurance company is not really an insurance company, but a 'broker'. The world has changed. Why risk your own money?" he said.
If the TCG finds good customers for banks and provides loan guarantees, banks can share profits with the TCG, such as 10 satang for every 100 baht of profit, said Mr Rak.
"I would ask 10 satang for every front-end [load]. But I do big lots, which are less risky," he said.
However, the key to success is to embed the sharpest credit-scoring tools, said Mr Rak.
"The TCG's status as a 30-year-old undertaker is my selling point. The TCG has dealt with many Thai SME 'corpses' for up to 30 years, providing loan guarantees of more than 1 trillion baht for over 600,000 SMEs," he said.
"I work beside SME corpses so I have the ability to analyse their information. Banks won't be able to detect which SMEs have near-death symptoms because they only see the attractive features. The TCG can detect whether a particular SME will fall six feet under in three years."
The TCG's detection ability was honed through years of performing autopsies on more than 600,000 SME corpses and guaranteeing over 1 trillion baht worth of loans, said Mr Rak.
Normally loans provided to SMEs, filtered through banks' loan approval process, will turn into non-performing loans (NPLs) at around 5-6%.
But when an economic crisis occurs, the NPL ratio of SME loans could spike to 8%.
That ratio could even climb to 9% during the Covid-19 crisis, he said, perhaps reaching double digits without debt holiday measures.
The debt holiday offered by banks serves as life support for some businesses. When that debt holiday ends, some businesses may not survive, said Mr Rak.
If the TCG is a hospital employee caring for patients in intensive care, banks are the doctors tasked with selecting those patients that still have a pulse to continue receiving care, he said.
For example, eight out of 10 patients may survive the pandemic crisis and the other two may have to be laid to rest, said Mr Rak.
"The TCG helps by providing loan guarantees for SMEs through the debt restructuring programme, with a total credit line of 50 billion baht. This will be used up in 10 weeks. In the past, there wasn't any tool like this -- we just had to let them die and banks would make claims with the TCG," he said.
HONEST TRUTH
SMEs that can survive this crisis are those that can adapt, said Mr Rak. Those that can survive passively can be classified as zombie firms, he said.
"Covid-19 is a natural tool to screen which businesses can survive. Those that are able to adapt will survive and take root for the future. Despite our loan guarantees, national resources will be wasted on supporting those that aren't able to survive because they are sunset businesses. All that can be done is to minimise the damage from these businesses," said Mr Rak.
For example, if a garment factory owner has tried everything, from laying off employees to using more machinery to lower production costs, yet still cannot generate revenue, this is a wake-up call, he said. The owner must decide whether to dip into his savings, or take care of his family and move on to another business, instead of spending all the savings on survival, said Mr Rak.
"The TCG should not promote false beliefs. We have to tell the honest truth to clients. Many SMEs need a wake-up call, and some of them are associated with the garment industry, a sunset business where factories have relocated to Vietnam because of lower labour costs," he said.
Other zombie companies comprise second-tier and third-tier manufacturers in the automotive industry, said Mr Rak.
"They will eventually be liquidated no matter how long they delay. Auto parts production has fallen to around 600 companies from 18,000 because of the emergence of electric vehicles," he said.
Workers in the auto parts segment will be unemployed as a result, and there needs to be a plan to reskill or upskill this workforce, said Mr Rak.
Another major concern for SMEs is financial literacy, he said, which has not improved much the past 30 years. Some SMEs still use overdraft loans, which have high interest rates, while others use the enterprise's liquidity to purchase assets that are not part of their business, such as condominiums, said Mr Rak.
Having a plan B is another message he wants to pass on to SMEs.
"A plan B could be your passion or dream you want to turn into reality. Inheriting a business from your parents is considered plan A for taking care of your family. If plan A vanishes, you have to ask yourself if your plan B can make money. If your plan B could generate 60% of your current salary, this can be another job opportunity," said Mr Rak.