SME Bank set to open spigots

The state-owned Small and Medium Enterprise Development Bank of Thailand (SME Bank) has set a new-loan target of 40 billion baht this year, aimed at injecting liquidity into small business amid a tepid economic recovery.

And while economic growth will improve on last year’s showing, its pace will be slower than expected and the rebound will remain fragile in the first quarter, said chairwoman Salinee Wangtal.

The SME Bank will play a role in seeing small businesses through a difficult time.

Liquidity in the banking system will tighten this year as commercial banks raise deposits to prepare for lending to finance the government’s infrastructure projects.

The Fiscal Policy Office and the Bank of Thailand recently forecast 2015 GDP growth of 4%, while the Asian Development Bank predicted 3.5% growth.

“The 40-billion-baht new-loan target for this year could be somewhat ambitious, but SMEs are likely to tap only a small amount of fresh funds from other sources in the current economic environment,” Mrs Salinee said.

The bank extended a mere 9.87 billion baht in new loans last year, largely due to the pre-coup political mess and the slowing economy.

Separately, SME Bank, in which the Finance Ministry owns a 98% stake, expects to complete a 2-billion-baht capital increase by February.

Of the proceeds from the recapitalisation, 1.5 billion baht will go to new loans and the remaining 500 million to the Finance Ministry’s SMEs Private Equity Trust Fund, a joint venture fund investing in SMEs.

The 2-billion-baht capital increase is part of the ministry’s approval of the SME Bank increasing its capital to 30 billion baht, up from 20 billion.

The state-backed bank is one of two ailing specialised financial institutions required by the State Enterprises Policy Commission, or superboard, to rehabilitate their business in order to address long-term problems. The other is the Islamic Bank of Thailand.

The SME Bank aims to limit lending to SMEs to 15 million baht each to new customers to comply with superboard rules, but it can loan more than this amount in the case of existing borrowers.

The bank expects fewer than 5% of new loans to turn sour this year as it divests of 10 billion baht in non-performing loans.

NPLs stood at 31.9 billion baht or 37.61% of the SME Bank’s loans outstanding at the end of 2014.

Mrs Salinee said the bank’s NPLs would likely fall to 20% by year-end, with net profit rising to 1 billion baht from 334 million last year.