TCG to push for more help for SMEs
Credit guarantor seeks new scheme to give small operators continued access to loans. By Wichit Chantanusornsiri and Oranan Paweewun
The state-owned Thai Credit Guarantee Corporation (TCG) will discuss a new portfolio guarantee scheme (PGS) worth 150-200 billion baht with the Finance Ministry in early October. The scheme is meant to allow small businesses continued access to bank loans amid the uneven economic recovery.
Non-performing loan (NPL) compensation for PGS7 would be similar to the 100-billion-baht PGS6, which had a 30% coverage ratio. TCG will also seek the government’s approval to subsidise annual fees to assist small and medium-sized enterprises (SMEs), president Nitid Manoonporn told the Bangkok Post.
“If features of PGS7 are not on par [with PGS6], it will be difficult to attract SMEs to use it. We’re concerned the portfolio credit guarantee offering will not continue as getting it approved takes time. In early October, we’ll start to discuss the issue with the Finance Ministry,” he said.
Under the PGS, TCG compensates a fixed percentage of the coverage ratio to lenders if their SME loans guaranteed under the scheme turn sour, while financial institutions must shoulder the remaining NPLs. With the credit guarantee, the government aims to make it easier for financial institutions to lend to SMEs, which are struggling with the jagged economic turnaround.
“Next year SMEs will still need assistance. If SMEs are to remain the government’s focus, they should continue to get help,” said Mr Nitid. TCG wants the remaining 81 billion baht in credit guarantees under PGS6 to be allotted to SME operators by the year-end, he said.
The Government Savings Bank, Krungthai Bank, Bangkok Bank, Siam Commercial Bank and Kasikornbank receive a credit guarantee quota of 12 billion baht each, while the Small and Medium Enterprise Development Bank
of Thailand (SME Bank) gets 7.5 billion, and 13.5 billion is allocated among another 10 lenders.
After the 100-billion-baht credit guarantee under PGS6 was granted at a slow pace since it started early this year, the government raised the cap for NPL coverage to 30% from 23.75%. Both the government and banks have jointly subsidised an annual fee of 1.75% of the loan amount for four years to lure SMEs to apply for the credit guarantee, a tool that helps them more easily secure bank loans.
With the higher bad loan coverage and the annual fee waiver, the government’s subsidy for PGS6 increased to 13.5 billion baht from 5 billion for the 10-year credit guarantee period.
Mr Nitid floated the idea of applying risk-based pricing to determine an annual fee for each SME operator who uses credit guarantees under PGS7 instead of the flat rate of 1.75% applied to previous portfolio guarantee schemes.
MORE AGGRESSIVE APPROACHES
To comply with the Finance Ministry’s policy of attempting to get TCG to reduce its reliance on the government’s subsidy, the specialised financial institution plans to launch new credit guarantee products to serve specific SME groups, said Mr Nitid.
TCG is discussing with the Bank for Agriculture and Agricultural Cooperatives (BAAC) the possibility of offering a credit guarantee service to the latter’s borrowers that are agricultural cooperatives as the state-backed farm bank requires agricultural cooperatives’ board members to be guarantors for the loan, he said. Agricultural cooperatives now need cash flow of 10 billion baht a year, said Mr Nitid.
TCG is also in talks with SME Bank to provide guarantees for the bank’s loans to SME tourism operators. Given that tourism operators have low risk as their business is booming, TCG may charge a lower annual fee of 1% or 0.5%.
The credit guarantor plans to offer the service to SMEs that seek leasing, hire purchase loans and factoring from non-bank operators to buy vehicles or machinery after the amended law governing TCG takes effect in the near future, to widen their sources of funding, said Mr Nitid.
It also plans to directly access SMEs by joining hands with the Industrial Estate Authority of Thailand to convince SMEs with production bases in industrial estates to use TCG’s services to apply for loans. Better access to SMEs is a policy from TCG’s board, he said.
TCG plans to raise SME awareness of credit guarantees starting from next year through social networks such as Line, Facebook and mobile applications.
“People barely know TCG, so we need to work in an aggressive way. Customers go to banks now and they are sent to us. In the future, we must make SMEs contact us before they go to the bank to apply for a loan,” said Mr Nitid.
“This is a challenging target. We’ll create a customer base with banks so that we no longer have to wait for a credit guarantee amount from banks. We will work aggressively by getting in direct contact with SMEs.”
TCG’S TARGETS
TCG has credit guarantees outstanding of 330 billion baht with 250,000 customers, of which 20% are microSMEs. The firm averages a credit guarantee of 1.5 million baht per customer, with loan guarantees ranging from 50,000 to 40 million baht.
It aims for 65,000 new customers this year and had signed up 56,000 new customers as of Aug 26, he said. TCG targets at least 80,000 new customers in 2018.
TCG has issued new credit guarantees of 41 billion baht as of August, but it feels this year’s target of 100 billion is reachable based on the 81 billion of guarantees left under PGS6.
Mr Nitid said TCG’s non-performing guarantees (NPG) increased to 12% from 8-9% prior to his taking over as president one-and-a-half years ago.
“We’re not worried as we capped NPL coverage at 30%. NPG has constantly risen as our credit guarantee portfolio increases. It is common that as larger loans are extended, the level of bad loans rises,” he said.
The firm expects its NPG will be below 15% by yearend, said Mr Nitid.
Despite the uptick in NPG, the current level is not a high for the institution, as NPG peaked at 19% in 2009 when it provided full NPL coverage before changing to an NPL-sharing model, he said.
To reduce NPG, TCG will apply to become a member of the National Credit Bureau in October. This will cause the repayment record of SMEs that have not repaid their debt with TCG show up in the bureau’s records and force them to settle the debt if they want to secure additional loans from financial institutions, said Mr Nitid.
TCG wants the Finance Ministry to push for a legal amendment that compels banks to contribute to TCG in the same manner as South Korea, where lenders must contribute 0.02% of their SME loans to the credit guarantor to give it enough capital to offer high NPL coverage, he said.