Ministry mulls tweaking nanofinance

Ministry mulls tweaking nanofinance

The Finance Ministry may relax conditions for the granting of nanofinance operating licences to allow more retail players to enter the industry, says a senior official.

The official, who declined to be named, said all 21 licensed lenders in nanofinance, which began a year ago, are large corporations. The government believes the sector should be open to medium-sized lenders to heat up competition.

The source said the ministry may relax the minimum registered capital requirement from above 50 million baht. 

Another condition for nanofinance operators is they must maintain a debt-to-equity ratio not exceeding 1:7, and their interest rate plus operating costs and penalty rate must not exceed 36%.

Operators must apply for an operating licence from the Bank of Thailand.

"Senior officials are considering whether we should compromise. If we do, potential borrowers will have more choices," said the source.

Among the 21 firms granted nanofinance licences, only six have already started business and only four have extended loans, resulting in relatively low outstanding nanofinance loans of 81 million baht for 4,300 borrowers as of the end of October.

The Finance Ministry expects outstanding loans will rise to at least 100 million baht, rising to 20 million baht in new loans per month next year.

Licence holders are reluctant to do business because of a lack of confidence in the ability of nanofinance borrowers to repay at a time when the economy remains in the doldrums, the source said.

"This is a business that faces high risks. It doesn't require collateral from borrowers," said the source, adding that operators have also asked for a higher penalty rate for debt defaults from the current 36%. But the Finance Ministry regards this as too harsh.

Meanwhile, the state-owned Thai Credit Guarantee Corporation (TCG) said yesterday it was also pitching the idea to the Finance Ministry to allow it to provide a credit guarantee service for licensed non-bank lenders and nanofinance firms, said TCG senior executive Wichet Warakul.

The TCG's outstanding credit guaranteed loans now stand at 300 billion baht, increasing from 30 billion baht when it started seven years ago. The total outstanding small and medium-sized enterprise (SME) loan segment currently stands at 4.4 trillion baht.

Mr Wichet said the poor debt-repayment ability of SME borrowers has affected TCG's non-performing loans (NPLs), which are expected to rise to almost 10% by the end of the year. For the first half of the year TCG reported NPLs of 8%.

"However, we are confident NPLs will not rise further next year. If the economy can recover at the predicted pace, we should be able to maintain our NPLs in single digits," said Mr Wichet.

But he insisted NPLs in single digits remained quite low compared with its ceiling for NPLs of 22.5% of total loans, while the rest of the risk is shouldered by the lender.

Another state-owned bank, the Bank for Agriculture and Agricultural Cooperatives (BAAC), is also attempting to decrease its NPLs below 4% by March next year after it implemented a rigorous debt-restructuring process.

BAAC president Luck Wajananawat said the debt-restructuring process, which has been adopted in line with Bank of Thailand regulations, would reduce the bank's NPLs to 4% at the end of its fiscal year, valued between 30 billion and 40 billion baht, from the current outstanding 6.02% or around 60 billion baht.

The bank's NPL ratio rose to 5.66% at the end of September from 3.38% at the end of March.

Poor crop prices and the drought have added to farmers' difficulties and put pressure on the BAAC, which is the major financial source for farmers.

The debt-restructuring process includes visiting each customer and recording their income and expenses in order to reach a solution on a payment schedule, he said.

"We will arrange the debt-repayment structure in accordance with customers' income," said Mr Luck.

The bank would not file lawsuits on overdue payments unless a customer behaves in an unacceptable manner, he said.

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