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Published on March 24, 2008

Inflation can sometimes be good for banks. As commodity prices surge, many firms need short-term credit to stockpile raw materials. This trend has boosted working capital loans at many banks.

Piti Tantakasem, a senior vice president at Kasikornbank (Kbank) said from early this year, its working-capital loan portfolios have grown sharply.

The bank's growth rate was up

15-30 per cent from the end of last year, while a portion of its short-term loans form as high as 70 per cent of new lending.

"Let's say the bank provides a loan of Bt100, of which Bt70 is made out as business working capital," he said.

In contrast, last year long-term credit formed 70 per cent of the bank's loans.

He said the scenario is based on rising commodity prices. Oil, steel and copper were among the goods that have shot up in price - forcing manufacturers to stock up as a way of managing risks.

With uncertainty clouding the US economy as well as that of the Kingdom, many investors lack the confidence to take long-term positions.

As a result, many seek short-term financing in the current environment.

Working capital loans provide banks with a narrower margin than long-term credit.

Because it has a shorter maturity period, it is seen as carrying less risk.

Although loan expansion was not a worry this year, banks should be concerned about margins, Piti added.

Bangkok Bank executive vice president Piya Sosothikul said the bank provides loans for working capital mainly to commodity operators.

This is caused by an upward trend in the price of goods as well as seasonal factors.

However, the portion of short-term and long-term loans this year remains unchanged from the past few years, he said.

Finance for working capital stood at about 60 percent of the bank's loan portfolio, with the remaining 40 per cent being long-term credit.

The general manager of small and medium enterprise (SME) banking at Standard Chartered Bank (Thai), Wareemon Niyomthai said its short-term finance also represented the largest portion of its SME loan portfolio, standing at about 70-80 per cent.

This is based on the current economic environment and businesses that form a large segment of its clientele.

She said the bank's SME borrowers are mainly traders as short-term loans fit their business needs better.

Somruedi Banchongduang

The Nation