KBank plans buffer for SME loans
Kasikornbank (KBank) is required to set aside larger loan impairment charges for its small and medium-sized enterprise (SME) loans in compliance with the International Financial Reporting Standard 9 (IFRS9), which requires lenders to have larger reserves and earlier recognition of credit losses.
The bank is preparing to classify types of SME loans based on the new accounting standard, said Surat Leelataviwat, executive vice-president of SME business, without providing an estimate of expected reserves.
The bank will talk to SME customers to convince them to either lower unused credit lines or switch to other types of loans as IFRS9 only deals with credit lines, even if customers do not take out the full amount of credit, he said.
IFRS9 is due to replace International Accounting Standard (IAS) 39 from Jan 1, 2019, but some large banks started to set aside higher loan-loss provisions in the final quarter of last year to prepare for the new rule.
The new standard requires banks to switch to recognising and providing for expected credit losses on financial assets, rather than the current practice of only making provisions after losses are incurred, pushing provisions up across the industry.
Mr Surat said that larger loan-loss buffer requirement strengthens banks’ financial health and such requirements comply with the new accounting standard, while customers’ financial positions remain unchanged.
The country’s fourth largest lender by assets estimates that its SME non-performing loans (NPLs) will be steady at 5% of the loans outstanding at the end of this year, he said.
Quality of SME loans is improving, indicated by the fact that overdue loans for new customers have declined, he said, adding that the bank can focus on recovering soured loans secured by existing borrowers.
The farm sector still needs to be monitored as fluctuating prices are taking a toll on operators, he said.
However, the agricultural sector’s financial problem will ease as farm product prices this year are expected to be stronger than last year.
Construction, exports and tourism have promising outlooks, he said.
He said that KBank aims for new SME loans worth 210 billion baht, raising the total SME loans to 736 billion at the end of this year, from 698 billion last year.
KBank is the country’s largest lender for SMEs, with a market share of 28.5%.
“The banks’ branch downsizing trend will not affect SME customers who want to apply for loans as there are several channels, particularly in digital, for them to access to lenders,” he said.
The bank started to lend SME loans through digital channels and the full-scaled service will be launched by mid-year.