Bank of Thailand explores credit guarantee schemes for SMEs

The Bank of Thailand is contemplating the establishment of credit guarantee schemes for small and medium-sized enterprises (SMEs) to enhance their access to bank loans. Suwannee Jatsadasak, assistant governor for the supervision group, stated that the central bank is analysing various credit guarantee schemes implemented in other countries, including Japan and Taiwan.

These nations offer more extensive credit guarantee packages to SMEs than Thailand, based on the mutual sharing of benefits and risks between businesses and financial institutions. Therefore, these schemes necessitate less government budget support.

The Bank of Thailand provided data revealing a 0.3% contraction in bank loans in 2023 compared to the previous year. SMEs with a credit line of less than 500 million baht each experienced a 5.1% year-on-year contraction in loans in the third quarter of 2023, following a 5.5% decrease in the preceding quarter, reported Bangkok Post.

Suwannee Jatsadasak noted that the capacity of SME loans has recently fallen from around 10 million baht per company. With a weaker financial capacity in the SME sector due to an uneven economic recovery, these businesses now have less access to bank loans. She further explained that banks have adopted a more cautious approach to granting loans to SMEs due to the increased credit risk in this segment amidst economic uncertainties.

Credit guarantee schemes align with the requirements of SMEs and enable financial institutions to better assess the risks associated with SME loans, she added. Central bank data from the fourth quarter of 2023 revealed that SMEs’ non-performing loans (NPLs) increased to 6.66% from 6.64% in the previous quarter. SME special mention loans, defined as loans overdue from 30 to 90 days, rose to 11% from 10.6% over the same period.

Demand for unsecured loans, which include credit card and personal loans, has also risen among SMEs. “This may be one reason why the National Economic and Social Development Council (NESDC) proposed the central bank waive the minimum payment for credit card debts,” Suwannee Jatsadasak commented.

Credit card debt

The central bank has raised the minimum payment of credit card loans to 8% of the total balance since the beginning of this year after the ratio was halved to 5% during the pandemic from the usual level of 10%. The central bank intends to restore the required minimum payment to 10% next year.

Suwannee Jatsadasak highlighted that the central bank will discuss minimum credit card payments with the NESDC since any increase would impact some cardholders, including both individuals and SMEs.

“However, keeping the ratio at a low level would impact borrowers in the longer term because they need to shoulder a higher financial burden.”