BoT and Ministry look to tweaking soft loans for SME aid

The Finance Ministry and the Bank of Thailand are set to discuss amending the soft loan royal decree soon in a bid to provide greater financial relief coverage for small and medium-sized enterprises (SMEs).

The idea of amending this royal decree stems from the intent of some government officials to expand the coverage scope for SMEs reeling from the outbreak, said a Finance Ministry source speaking on anonymity condition.

The most important amendment is to waive the requirement for SMEs to be stipulated as bank customers in order to obtain the soft loans, said the source.

Some of the existing conditions for SMEs to receive this financial remedy include status as bank customers whose loans are not classified as nonperforming loans (defined as more than 90 days overdue) and capped at 20% of the existing loans outstanding.

Another amendment is to modify the interest rate that commercial banks charge their borrowers seeking the soft loans, said the source.

The interest rate could be hiked to 5% from the existing ceiling of 2% in order to incentivise commercial banks to provide the soft loans for SME borrowers, said the source.

The move to amend the soft loan conditions, however, has raised concerns for some officials due to possible losses, said the source.

For instance, being labelled as bank customers would be better for financial institutions as banks have their own databases to assess client information. Higher risks would arise if borrowers whose credit histories are not within bank databases were able to obtain the soft loans.

Even if these amendments were approved, commercial banks would still have to assess borrowers’ credit histories before approving the soft loans, said the source.

Commercial banks normally have stringent loan approval criteria compared with state-owned banks because commercial banks are liable for allocating higher loan loss reserves for bad debts.

Commercial banks are also required to adhere to the Financial Institution

Business Act where losses associated with corruption arise from banks’ loan approvals.

Amendments made to the soft loan royal decree may not entice commercial banks to offer more soft loans, said the source, adding the burden to provide soft loans will fall to stateowned banks.

Of the total 500 billion baht in soft loans, around 120 billion has been disbursed to SME borrowers.