The plan to establish the National Credit Guarantee Agency (NaCGA), a new institution designed to offer credit guarantees for businesses and individuals, is expected to be submitted to the cabinet this month.
According to Deputy Finance Minister Paopoom Rojanasakul, creating NaCGA as a component of the country's financial ecosystem is likely to be presented for cabinet consideration on Aug 13. The proposal is currently receiving feedback from relevant agencies.
However, if it cannot be reviewed by the cabinet this week, it may be postponed for another two weeks, he said.
According to Mr Paopoom, the Finance Ministry will submit a proposal to the cabinet outlining the principles for establishing the NaCGA. This proposal will detail the agency's duties, its structure, and the state's subsidy approach for small and medium-sized enterprises (SMEs) seeking NaCGA loan guarantees. If the cabinet approves these principles, the ministry will draft legislation to formally establish the NaCGA, he said.
Mr Paopoom said the ministry has already prepared this draft law in consultation with the Bank of Thailand, with the law expected to take effect around mid-2025.
"Once NaCGA is established, the existing state agency, Thai Credit Guarantee Corporation [TCG], which guarantees loans for SMEs, will continue to operate in parallel with NaCGA," he said. "However, the working methods and guarantee approaches will differ."
Under the current credit guarantee structure of the TCG, financial institutions providing loans to SMEs evaluate the risk of each customer themselves. If they determine the risk is high, they will refer the customer to the TCG for assistance with the guarantee. If the TCG provides the guarantee, the financial institution then grants the loan to that SME.
In contrast, NaCGA will act like an insurance company, providing financial risk insurance and evaluating each SME's risk itself before issuing a guarantee certificate. SMEs can present this certificate to financial institutions as a loan guarantee.
Additionally, the credit guarantee approach between TCG and NaCGA will differ. TCG guarantees loans under the Portfolio Guarantee Scheme (PGS) of up to 30% of the portfolio. NaCGA, however, will provide individual guarantees based on risk-based pricing, resulting in a lower budget burden for the state compared with PGS.
Mr Paopoom compared NaCGA's guarantee to car insurance, where the premium depends on the individual's risk behaviour. Higher risk leads to higher premiums, and lower risk leads to lower premiums. For instance, if any SME wants NaCGA to provide a 100% loan guarantee, the guarantee fee may be higher.
However, NaCGA's guarantee fees should not be excessively high because state subsidies cover part of the fees, with SMEs paying the remainder based on their risk, he said.
NaCGA is part of a broader government initiative to enhance financial support and risk assessment capabilities in the country under the "Ignite Finance" plan.
NaCGA is meant to complement the efforts of the TCG, a state-owned financial institution focused on providing credit guarantees primarily for SMEs. TCG operates under the Finance Ministry and has been instrumental in supporting businesses through various financial products and services.
Mr Paopoom said the establishment of NaCGA signifies the Thai government's commitment to enhancing credit access and fostering a more inclusive financial environment, which is crucial for economic recovery and development following the pandemic.
In a separate development, Udom Srimahachota, vice-president of the Thai Hotels Association's western chapter, said Thailand's financial ecosystem needs restructuring to benefit SMEs, which make up a majority of hotels and tourism operators.
Mr Udom said establishing a one-stop agency and allowance for foreign financial institutions to set up a branch in Thailand offers both opportunities and challenges, and the government should carefully study the long-term effects.
He said while the Finance Ministry expects borrowers will pay a low-rate premium to NaCGA for credit guarantees, it might not differ much from the TCG, which the ministry is likely to incorporate into NaCGA.
Mr Udom said the government should assign the Office of Small and Medium Enterprise Promotion and the Institute of SME Development to help train operators in new skills and redevelop their services and products to increase their competitiveness.
"Since the pandemic, many small hotels haven't recovered because of their low asset value and high ratio of debt to equity accumulated for many years, preventing them from accessing loans," he said.
Mr Udom said the 2.5% policy interest rate is a crucial factor keeping small operators from competing with large conglomerates and Chinese companies. They are also overwhelmed by higher labour and product costs.
He said the government should strictly regulate this financial ecosystem in order to prevent economic bubbles and illegal actions.