Bank of Thailand to propose new guarantee mechanism, aiming for 100 billion baht in SME lending per year
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The Bank of Thailand plans to propose to the Minister of Finance within the next two to three months the establishment of a new credit guarantee mechanism to give SMEs greater access to credit, expected to help enable lending of about 100 billion baht per year, after the Credit Boost programme already disbursed 70 billion baht. Vitai Ratanakorn, Governor of the Bank of Thailand, disclosed that although the financial system still has liquidity of about 6 trillion baht per day flowing back to the Bank of Thailand, capital allocation remains problematic. Large corporate loans expanded by about 6.6%, while SME loans have been negative for 16 consecutive quarters, even though SMEs account for 35% of GDP and employ 69% of total employment. The key problem is that the best-performing 30% of SMEs can access only 21% of commercial bank credit, compared with 63% for large corporates, and SMEs pay interest rates as high as 13.4%, compared with a maximum of 6.9% for large corporates. Newly established businesses or SMEs aged 0 to 5 years can access only 11% of credit, and those aged 6 to 10 years only 26%. Meanwhile, research by the Puey Ungphakorn Institute for Economic Research indicates that about 78% of new borrowers with little credit history cannot obtain loans, even though newly opened businesses are more profitable than long-established ones. The Bank of Thailand is also continuing negotiations with the credit bureau to reduce fees, which sometimes reach 3 to 4%, and will discuss with NDID to lower identity verification costs, while hoping that the arrival of Virtual Banks will help reduce banks' operating costs to some extent.