Maximum drawdown for BoT soft loans falls short

The maximum drawdown for the Bank of Thailand’s soft loans, set at 20% of each bank’s loans outstanding as of yearend 2019, could be too little for some customers, says a bank executive.

For instance, if a customer has borrowed for seven consecutive years, the existing credit line may not be adequate, making 20% of the outstanding amount very low, especially for small and medium-sized enterprise (SME) customers, said Nartnaree Rathapat, president at the SME Development Bank.

Soft loans worth 3 billion baht have been used by SME D Bank.

The central bank has been offering 500 billion baht in soft loans at 0.01% interest to financial institutions for two years to re-lend to SMEs with a maximum credit line of 500 million baht at 2% interest.

The government will absorb interest charges for six months for SMEs that receive soft loans.

To be eligible, SMEs must operate domestically, be non-listed firms, have a credit line of up to 500 million baht from financial institutions and continue to service debt or make late payments of less than 90 days at the end of last year.

An interest rate incompatible with banks’ financial costs is the main reason the Bank of Thailand’s soft loan programme has floundered, according to a source at a state-owned financial institution.

The soft loan cost incurred by the central bank is 1 satang, and the central bank offers the loan to commercial bank at a cost of 2 satang in a bid for banks to relend to their own customers at no more than 2%, said a banking source speaking on condition of anonymity.

Most banks do not want to offer the soft loans at a low interest rate, as their financial burdens exceed 2%, the source said.

Lavaron Sangsnit, director-general of the Excise Department and former director-general at the Fiscal Policy Office, defended the soft loan scheme, saying the 500-billion-baht sum will not be used within one year, as each drawdown depends on the needs of each business operator.

Regarding the maximum drawdown limit of 20% of outstanding loans, the central bank is evaluating whether to adjust the ratio to be in line with existing economic conditions, said Mr Lavaron.

The number of businesses that have been offered soft loans by commercial banks but declined them is more than those who have been rejected, he said.

“Those who have been rejected is because banks do not want to incur more risks since these businesses have already been disrupted,” Mr Lavaron said.