SMEs ‘not suffering’ from higher rates

Small firms have more options, BOT says

Bank of Thailand governor Veerathai Santiprabhob played down Finance Minister Apisak Tantivorawong’s recent comment that commercial banks charge too much interest to small- and medium-sized enterprises (SMEs) compared to large corporates, saying SMEs enjoy competitive rates.

SMEs are typically charged interest rates based on the minimum lending rate (MLR) plus a risk premium, but banks have lowered their risk premium in recent years following intensified lending competition, forcing them to fight for market share, he said.

Market rates have remained low for a while and there is a gap in the lending rates between large corporates and SMEs as the former is able to access cheaper funding sources from capital and money markets, said Mr Veerathai.

“The competitiveness of SMEs and their potential to access financing are the bigger concerns than interest rates. Amid the changing economic landscape, SMEs need to adapt in several areas including marketing, products and technology. Given this is a structural problem, it needs a solution from all related parties in government and private sectors,” he said.

The incumbent finance minister told a local media outlet that the current spread of rates is too wide, which is helping large firms thrive while SMEs struggle. He said he has asked the central bank to oversee the issue.

Mr Veerathai said the Bank of Thailand is amending several acts to strengthen the competitiveness of SMEs and create opportunities for them to benefit from the digital era. For example, banks can innovate to better analyse loans based on applicants’ risk profiles as the current system relies mostly on collateral and financial statements.

Thai banks offer a similar net interest margin to other banks in the region, he said. Their average level exceeds that of banks in Singapore and Malaysia but is lower than their peers in Indonesia and the Philippines, said Mr Veerathai.

He said an accommodative monetary policy is required until the economic recovery becomes more stable.

Mr Veerathai said policy will hinge on domestic factors despite recent rate hikes in the US.

The Bank of Thailand’s Monetary Policy Committee has kept the rate at 1.5% since April 2015 when it shaved it by 25 basis points to boost the flagging economy.

Mr Veerathai has maintained the same policy line for months as he stresses the important of keeping inflation down.

The central bank has no plan to intervene in the currency markets to gain a trade advantage, he said.