Bangkok: The Governor of the Bank of Thailand revealed that he is in discussions with the Ministry of Finance and commercial banks to support new loans for SMEs in targeted industries, with a maximum credit limit of 50-100 million baht per loan. He also aims to reduce FIDF fees and establish a fund to compensate for credit losses from new loans by the end of this year.
According to Thai News Agency, Mr. Vitai Ratanakorn, Governor of the Bank of Thailand, discussed measures to support new loans, particularly SME loans, as business loans in the Thai commercial banking system have been contracting for a long time. Overall business loans have been in negative growth for five consecutive quarters, and SME loans have been in negative growth for 13 consecutive quarters. This represents another structural problem.
The reason for the contraction in business loans is the uncertainty and current economic conditions, which have reduced the demand for loans, especially from large businesses, and financial institutions are cautious in granting loans due to the increased credit cost or credit risk.
Therefore, to sustain the current economy, a mechanism is necessary to share risk with financial institutions, enabling them to extend more new loans to high-potential businesses, thus becoming the engine of economic growth. The Bank of Thailand, in collaboration with the Ministry of Finance and the commercial banking sector, is currently discussing the design of a loan guarantee mechanism for SMEs and enhancing their potential. Funding will come from reducing fees commercial banks must pay to the Financial Institutions Development Fund (FIDF). For example, setting up a fund to compensate for credit losses resulting from new loans to target groups of approximately 20 billion baht could reduce credit costs, the risk cost of loans, by approximately 100 billion baht.
This mechanism is designed to be targeted, focusing on providing new loans to SMEs in industries that will drive the Thai economy, such as agriculture and processed food, wholesale and retail, hotels, and wellness businesses. They also aim to enhance their own business potential, as well as businesses in the supply chain, and others who wish to promote and see changes in Thailand that will enhance their competitiveness, such as adapting to an environmentally friendly (Green Transition) model.
We will consider setting appropriate credit limits to distribute to entrepreneurs, with an expected maximum of 50-100 million baht per entrepreneur. The disbursement will be swift, ensuring timely economic activity. Furthermore, SMEs will have greater access to credit, which will further support the economy.
While the compensation application process is simple, easy to disburse, and the compensation amount is sufficient to cover the expected damages, it is expected to be around 10-30% for the maximum claim, with the general SME risk being 20%, to support new lending from financial institutions.
It is expected that the establishment will be completed by the end of this year, using this mechanism while discussions are underway to develop a broader credit guarantee mechanism.