An alternative path to growth
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An alternative path to growth

The new finance minister attempts to increase access to finance for small enterprises, a problem that has plagued Thailand for decades

People discuss financial deals at Money Expo 2024 Bangkok, held May 16-19 at Impact Muang Thong Thani.  Varuth Hirunyatheb
People discuss financial deals at Money Expo 2024 Bangkok, held May 16-19 at Impact Muang Thong Thani.  Varuth Hirunyatheb

Newly appointed Finance Minister Pichai Chunhavajira is taking a less hostile stance towards the Bank of Thailand than the premier, aiming to better coordinate fiscal and monetary policies.

Unlike Prime Minister Srettha Thavisin, who pushed for a rate cut for months in an effort to bolster the economy, Mr Pichai is taking a different approach.

During a recent meeting with central bank governor Sethaput Suthiwartnarueput, Mr Pichai, a former central bank board member, expressed greater concern about people's access to finance than interest rate cuts.

However, he did not elaborate on how to improve access to loans, noting only the central bank can exercise some flexibility within the existing framework, while financial institutions can also initiate measures.


Sanan Angubolkul, chairman of the Thai Chamber of Commerce, said he agreed with the minister's discussions with Mr Sethaput focusing on how to facilitate access to capital for small and medium-sized enterprises (SMEs).

He said the chamber wants the government and financial institutions to ease regulations to allow SMEs better access to funding for investment, debt resolution, business expansion, and promoting digital transformation via technology use in business operations.

"Although there has been goodwill from all parties to assist entrepreneurs and the public in accessing funding, there hasn't been effective coordination. For example, at the regional level, each branch of financial institutions lacks decision-making authority and clear guidelines, leading to hesitancy in providing credit or releasing high-risk interest rates," said Mr Sanan.

"To address this, provincial chambers of commerce nationwide, which are closer to entrepreneurs, can act as intermediaries to coordinate and screen potential entrepreneurs for financial institutions, facilitating rapid access to credit, business rehabilitation and expansion, while also instilling confidence in financial institutions to release credit simultaneously."

He said the chamber collaborated with the Small and Medium Enterprise Development Bank of Thailand to develop a project to enhance funding sources and strengthen Thai SMEs. Members of the chamber and its network receive fast-track access to credit applications and can participate in training seminars to enhance their business knowledge, in addition to support for accessing funding quickly and easily through the bank's credit products tailored to business types.

The chamber is also concerned by household debt levels and is studying cooperation with employers to assist workers with debt issues, aiming for a sustainable solution that promotes financial discipline and knowledge. Preliminary studies suggest addressing this aspect can increase productivity and long-term competitiveness for entrepreneurs, said Mr Sanan.

"In the short term, to assist SMEs in finding funding sources, enhancing knowledge and creating business opportunities, the chamber is collaborating with the Business Development Department and the Office of Small and Medium Enterprises Promotion to organise the "Thai SMEs Power Expo" in June," he said.

The event provides space for SMEs to showcase and sell products such as franchises, food businesses and community products, while facilitating business matching between trade partners and partner organisations, said Mr Sanan.

Financial institutions plan to offer special interest rates at the event to make it easier for SMEs to access funding, he said.


As banks utilise stricter criteria to grant loans, this practice should not be universally applied to all borrowers, instead focusing on selectively lending to "good SME debtors", said Kriengkrai Thiennukul, chairman of the Federation of Thai Industries (FTI).

He said good debtors refers to SMEs that are creditworthy and have good repayment records.

This group of bank customers desperately needs funding to address liquidity issues, ensuring their survival and preventing layoffs, which would further harm the already sluggish Thai economy, said Mr Kriengkrai.

"We recommend financial institutions consider granting loans to SMEs classified status code 21, indicating they were impacted by Covid-19," he said.

These SMEs consistently repaid their loans, but defaulted as a result of lockdown measures imposed during the pandemic.

Although the previous government introduced financial aid programmes to support SMEs, they are still struggling financially now that such programmes have ended.

"These SMEs need loans to sustain their businesses and move forward," said Mr Kriengkrai.

Most FTI members are SMEs, and SMEs form the majority of entrepreneurs in the country.

"More than 80% of Thai businesses are SMEs. They play a significant role in driving the domestic economy, but their situation is extremely worrying," he said.

Without new loans from financial institutions and additional government aid, SMEs, particularly those with labour-intensive operations, may be forced to shut down, said Mr Kriengkrai.

He said operating costs are elevated following the government's decision to raise domestic diesel prices from 30 baht per litre to 33 baht, while deliberations are ongoing about hiking the daily minimum wage to 400 baht nationwide.


Udom Srimahachota, vice-president of the western chapter of Thai Hotels Association, said many small and medium-sized hoteliers are struggling to access funding because of the uneven recovery in tourism, which has negatively affected their balance sheets.

Mr Udom said the most severe cases are small hotels or accommodation located in less-visited areas that may target the domestic market, where income has not rebounded as quickly as in major cities.

These operators continue to face liquidity issues and accumulated high debt since the pandemic, he said. As a result, they are losing competitiveness to larger operators with more abundant capital resources because they cannot afford to renovate hotels or upgrade facilities to enhance the guest experience or save on costs, such as adopting green technology, said Mr Udom.

In the long run, tourists suffer from lower quality and fewer accommodation choices, he said.

Mr Udom said while it may be challenging to lower policy interest rates, the government should collaborate with commercial banks, which recently posted surging profits amidst a sluggish economy, to introduce a soft loan programme dedicated to SMEs.

This scheme should offer a low interest rate of 2-3% and have a budget of at least 50 billion baht to cover the entire tourism supply chain, including hotels, restaurants and tour operators, he said.

Nutthapong Larbboonsarp, director of Gold Mints Products Co Ltd, the manufacturer of the Poy-Sian inhaler brand, said many small community enterprises are ready to expand their businesses, but are unable to do so.

Unclear loan application criteria from financial institutions are hindering SMEs from accessing loans, he said.

Clear, transparent criteria would allow borrowers to assess their financial standing and determine their loan eligibility, which could help reduce non-performing loans (NPLs) and improve business opportunities, said Mr Nutthapong.

He said interest rates are slightly high, posing a challenge for SMEs entering a competitive market.

According to the central bank data, SME loans in the banking sector grew during the pandemic, attributed to the soft loan scheme.


Asia Plus Securities (ASPS) welcomed the central bank's announcement of efforts to enhance credit access for retail customers, SMEs and NPL debtors, as well as plans to adjust the responsible lending measures to align with global standards to ensure robust financial conditions in Thailand.

"Although the finance minister urged the central bank to consider lower interest rates, he acknowledged the regulator has autonomy over monetary policies," the brokerage noted.

Regarding measures to improve lending access for retail borrowers and businesses, ASPS said: "loan approvals are ultimately determined by banks based on risks and returns".

Assuming other factors are unchanged, every 1% gain in loans increases the net profit of the banking sector by 0.8%, noted the brokerage.

In the first quarter, the eight banks covered by ASPS had a total loan portfolio of 14 trillion baht, marking a 0.5% quarter-on-quarter and a 1.5% year-on-year increase. This growth was driven primarily by corporate, government, overseas and high-yield loans (such as auto title and auto cash loans).

However, car leasing, mortgages and SME loans declined because of a lack of stimulus from the government budget, said the brokerage.

ASPS is optimistic about Thailand's economy improving in the second quarter, expecting accelerated government budget disbursement to improve corporate and SME loans more than retail loans, given the high levels of household debt.

To facilitate SME access to funding, a banking economist who requested anonymity suggested the Thai Credit Guarantee Corporation relax its collateral requirements for SME loans.

This move could enhance SME funding, especially after banks agreed to lower their minimum lending rates by 25 basis points for six months for both vulnerable individuals and SMEs, as requested by Mr Srettha, said the economist.

Another option is for the central bank to add participants to its digital factoring platform. Although this platform was launched before the pandemic, it was not widely adopted because of the limited number of parties involved, said the economist.

Under the digital factoring system, SMEs can use invoices as debt collateral for loan assessment.

"Most SMEs and merchants lack substantial tangible assets such as land or buildings. Using invoices as debt collateral can allow them to secure more loans," said the economist.

New parties joining the digital factoring platform need not be banks, as other organisations with funds to support SME lending can also join, said the economist.


Suwannee Jatsadasak, assistant governor for the supervision group at the central bank, said banks have been cautious regarding the asset quality of SME loans because of the higher credit risk, particularly for unsecured SME loans.

The lack of sufficient financial and accounting information also makes it harder for SMEs to access bank loans, she said.

Ms Suwannee said the central bank already discussed with the Finance Ministry the limitations SMEs face in accessing funding sources. The duo agreed to provide additional loan guarantee support to help SMEs better access loans.

The central bank is also exploring other loan guarantee instruments beyond the existing support from the Thai Credit Guarantee Corporation, she said.

Ms Suwannee said the central bank's open banking policies, which include open infrastructure, open data and open competition, aim to improve SME access to funding through alternative data and new virtual banks.

In addition, she said the regulator's responsible lending (RL) approach, in effect starting this year, would not hinder SMEs' access to loans.

Under the RL approach, financial institutions are encouraged to lend responsibly by considering the borrower's ability to service debt, debt affordability and asset quality.

"With the RL approach, the central bank waived debt service ratio conditions, making it easier for borrowers to access loans. We believe this regulation strikes a balance between loan expansion and asset quality control," said Ms Suwannee.

According to central bank data, SME loans in the banking sector contracted before the pandemic. However, SME loans grew from the second quarter of 2021 to the third quarter of 2022, driven by the regulator's soft loan scheme that supported businesses during challenging times.

The soft loan initiative was replaced by the transformation loan programme, which encouraged SMEs to invest in green projects, digital transformation and innovation development. Both of these loan programmes have expired.

With the economic slowdown and uneven recovery, SME loans have continued to contract from the third quarter of 2022 to the present. In the first quarter of 2024, SME loans fell by 5.1%, a slight improvement from the 5.13% contraction in the fourth quarter of 2023.

SME NPLs increased to 6.88% in the first quarter this year, up from 6.72% in the previous quarter.

Molpasorn Shoowong, Kuakul Mornkum and Phusadee Arunmas

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