SME Bank told to fix lending procedures

Central bank points to corruption loopholes

Bank of Thailand has suggested the Small and Medium Enterprise Development Bank of Thailand (SME Bank) close off loopholes that could enable corrupt loans.

SME Bank has been under investigation over loans approved under past executives, including former president Soros Sakornvisava.

The state-owned bank is also being probed for falsified accounts, which a central bank audit highlighted as a main cause for non-performing loans (NPLs).

Opportunities for corrupt lending include a 5-million-baht ceiling on loans that executives can approve without board approval, said an SME Bank executive, who declined to be named.

Executives have also reportedly colluded with borrowers by splitting a single borrowing request into several 5-million-baht applications to bypass the board.

The central bank proposes sealing this loophole by linking loan applications to clients rather than projects.

SME Bank’s NPLs now stand at 32 billion baht, or 32% of outstanding loans, compared with a target of 28 billion, or 29%, by year-end.

The bank’s president recently asked the board of directors to back his plan to overhaul senior management, which he sees as crucial to reducing NPLs.

Earlier this year, the bank entered a rehabilitation process led by a committee chaired by Pichai Chunhavachira.

Irregular transactions revealed by the probe include a request by a company for a factoring loan backed by orders from five companies worth 29.7 million baht.

In fact, the five firms had the same main shareholder, said the SME Bank executive.

Later, this shareholder sold out his stakes in these firms and borrowed more from the SME Bank under his own name.

Shortly afterwards, he was appointed a member of the bank’s audit committee and, while serving in that role, he used the cheques of the five companies he formerly owned as a guarantee for an additional 100-million-baht loan, said the executive.

All these loans turned into NPLs, according to the executive.

In this case, the bank has filed charges and set up an investigative panel to assess its damages, the bank executive added.

Another case involves the Office of the Rubber Replanting Aid Fund, which made four deposits with the bank totalling 2 billion baht.

On the first three deposits, the interest rate was 1.6% plus a special rate of 0.17%.

For the last deposit, which totalled 1 billion baht, the rate was 2% plus a special rate of 0.5%. But the cheque the bank made out as payment for the special interest rate for this last deposit was not standard crossed (a/c payee only). As a result, the payment ended up in the pocket of someone unrelated to the fund.