thegreglowe.com

By GREG LOWE
IN BANGKOK

THAILAND will extend a lifeline to small and medium-size enterprises (SMEs) and export-related businesses through an eight billion baht (S$347 million) loan insurance scheme.

Industry and economists have welcomed the anti-recession initiative but say more must be done to boost productivity and win support from commercial banks.

The government will inject five billion baht into the state-owned Export-Import Bank of Thailand (EXIM) and three billion baht into the Small Business Credit Guarantee Corporation (SBCG).

EXIM, which reimburses exporters when customers fail to pay, will be able to provide credit guarantees of 100-150 billion baht a year for the next three years with the new capital.

And SBCG will be able to underwrite an extra 30 billion baht of loans to small businesses.

The Ministry of Finance said the plan will help protect jobs and reduce business failures.

The Institute for SME Development (Ismed) said the move will help small companies by easing access to working capital, but the government must adopt a longer-term view to help SMEs survive the current downturn and others in the future.

‘The money will help SMEs in the short-term but what will happen in six months when the cash runs out,’ said Ismed president Thanet Norabhoompipat. ‘The government needs to invest in practical training schemes for SME owners to reduce inefficiencies and increase productivity.’

Thailand’s tourism, electronics and electrical and agricultural sectors are being hurt by the global slowdown, coupled with domestic political uncertainty.

According to a recent Bank of Thailand survey, liquidity for SMEs will tighten through the current first quarter. The survey showed that 15 per cent of bankers expect a significant increase in SME loan delinquency in Q1. About two-thirds say the main problems facing SMEs are credit guarantees, access to soft loans and interest rates.

Thailand has 2.42 million SMEs that employ a total of 9.28 million workers, according to Office of Small and Medium Enterprises Promotion figures. About half of these businesses are export-related and at increased risk of failure due to shrinking international trade.

Most SMEs lack standard operational guidelines and need help developing best practice, says Ismed.

Economists have welcomed the bid to boost liquidity but say state financial institutions cannot handle the task alone.

‘The capital injection will help SMEs that cannot access funds because they are seen as risky business by banks, especially now,’ said Thanomsri Fongarunrung, an economist at Phatra Securities. ‘The government initiative should help solve this to some extent.’

But the state-owned banks cannot support 2.42 million SMEs by themselves, she said. ‘Commercial banks must be willing to lend to make the package really effective. At the moment it’s not clear exactly how much of the loans will be guaranteed and how the risk will be shared. The government will need to clarify this to get the commercial sector on board.’

However, the package will increase SBCG’s loan insurance capacity to 43 billion baht from 13 billion baht, supporting a credit line of 129 billion baht. The institution guarantees up to 30 per cent of an individual loan, capped at 20 million baht. It said it can support an extra 15,000 businesses with the new capital.

The state-owned SME Bank also forecasts significant loan growth this year, increasing its lending 30 per cent to 26 billion baht, from 20 billion baht last year.

Published February 19, 2009
© The Business Times