The Export-Import Bank of Thailand (Exim Bank) plans to handle the impact of the global trade war, which could lead to a contraction in export loans, by venturing into bond guarantees.
The bank does not yet have a licence to operate a bond guarantee business, but it is preparing to apply for a licence from the Finance Ministry and the Bank of Thailand, said Rak Vorrakitpokatorn, president of Exim Bank.
"Next year, the global trade war is expected to intensify, which will affect the country's exports and ultimately impact the expansion of export-supporting loans of the bank," said Mr Rak.
"To ensure continued growth, Exim Bank therefore must find supplementary businesses, one of which is to provide guarantees for corporate bond issuances by the private sector. The bank would assume the debt repayment responsibility if the guaranteed bonds default while earning income from guarantee fees."
For this year, he said the bank is confident its loan expansion will slightly outpace the target. The bank has set a target for outstanding loans at 185 billion baht but expects to achieve 190 billion baht.
As of the end of the second quarter, the bank approved new loans amounting to 16.9 billion baht, with cumulative outstanding loans at 174 billion baht, an increase of 11.8 billion baht or 7.29% year-on-year.
Mr Rak said providing guarantees for corporate bonds would allow debt instruments with potentially lower ratings to issue bonds with lower coupons.
According to market mechanisms, if a debt instrument has a low credit rating, the interest rate or coupon will be high. Conversely, securities with high credit ratings will have lower coupons.
International organisations such as Asean+3, in collaboration with the Asian Development Bank, established the Credit Guarantee & Investment Facility to promote the development of private sector bonds in the region by providing guarantees for bond issuances to reduce the cost of fundraising.
There are three ways to reduce the coupon rate of bond issuers: 1) issuing bonds with collateral or secured bonds, 2) issuing securitisation bonds where bondholders receive principal and interest from assets converted into capital, and 3) offering bond guarantees.
Regarding the global economic situation, Mr Rak said the International Monetary Fund forecast in July that the global economy would grow by 3.2%, close to last year's growth of 3.3%. However, this is still lower than the 10-year average (excluding the pandemic period) of 3.7%.
Mr Rak said Exim Bank itself foresees several challenges for Thailand in the remaining part of this year.
They include the global economy which is starting to slow; rising global transport costs due to conflicts in several regions, causing freight rates to increase 3-5 times compared to last year; a fragile global financial market with more volatile fund flows due to high interest rates; and prolonged geopolitical issues, leading to a more pronounced global political divide.
According to Mr Rak, if Donald Trump wins the US presidential election, the global trade war could escalate, with the US potentially increasing import tariffs on goods from China and other countries, which would affect Thailand.
Chinese goods that cannot be sold to the US and Europe may flood other markets, including Thailand, causing Thailand to face the risk of US anti-dumping and countervailing duties as measures as the country becomes a back-up production base for China, he said.