10% rise in SME loans forseen after daily wage hike

Banks do not expect this year's new lending to small and medium-sized enterprises to exceed last year's growth level as SMEs face many challenges, including the Bt300 daily minimum wage and the skilled-labour shortage, which affect their competitiveness.

The banking industry expects SME lending to expand by 10 per cent, similar to the growth witnessed in 2012, as positive factors driving additional lending are yet to be seen.

At least two banks share the view that fee-based income from SME clients and a more selective lending focus on potential industries can secure them a healthy profit this year.

A senior executive at Krungthai Bank said the institution had improved its credit-analysis system for SMEs that require a credit line of no more than Bt20 million.

The bank now requires SME borrowers to open asset-statement accounts so that it can monitor their cash flow and ensure that a loan is used in line with agreed objectives.

"Credit analysis [alone] might not be enough for checking the objectives of borrowing [are met], but cash flow in the asset-statement accounts will enable the bank to know customers' financial movements and control any unexpected risks," said Weidt Nuchjalearn, KTB's senior executive vice president.

KTB is fully aware that the nationwide increase in the daily minimum wage will push up the operating costs of SMEs, for which wages account for 16-17 per cent of total costs, he said.

The bank will, therefore, focus more on lending to SMEs that can adjust to cope with the impact of the wage hike, and will keep a special watch on those in labour-intensive industries.

SMEs that are unable to adjust have a low chance of receiving a normal credit line, but KTB can still help them get loans at low interest rates if the businesses enter one of the bank's special programmes, he said.

The KTB productivity programme is one such scheme, aimed at enhancing SMEs' manufacturing efficiency through the use of technology and reducing the reliance on labour.

Jiratchayuth Amyongka, head of SME banking at Thanachart Bank, said the new daily minimum wage had a significant direct and indirect impact on SMEs' costs.

Apart from increasing wages, SMEs have to pay more for their raw materials, as their suppliers are also faced with higher costs due to the government's measure to improve incomes.

The result is that the Bt300 daily minimum wage will drive up SMEs' costs by 20-30 per cent, he said.

Thanachart Bank and its business customers began to prepare for this impact in the middle of last year. Fund control was identified as a way for companies to offset higher wage costs, with SMEs encouraged to generate additional sales from expanding new markets.

The bank will increase the cross-selling of products to increase fee income, while at the same time being more selective as to its lending to SMEs, taking into account the scale of their activities and the industries in which they operate, he added.

"We will focus more on SMEs, because they are willing to pay fees if the bank can provide the full amount of a loan and offer quick services," Jiratchayuth said.

Quick processing is the heart of SME banking, he said, stressing that clients are able to offer a trade-off as long as banks can offer what they want.

Thanachart Bank has invested a lot in its "SMEs scorecard", he said.

The goal is for fee income at its SME banking unit to double to 40 per cent of overall fee income within three years.