As SMEs face tighter liquidity amid slow sales, banks expect rise in NPLs

Economy February 04, 2014 00:00

By Business Reporters
The Nation

3,395 Viewed

Banks are bracing for a rise in non-performing loans (NPLs) as small and medium-sized enterprises and retailers take sales hits from the prolonged political row plaguing the country.

Vasin Vanichvoranun, executive vice president of Kasikornbank, said commercial banks were being more cautious in their lending to SMEs and retail customers, which had little resilience to changing economic situations. However, the bank has experienced little difficulty with its large-business clients during the political impasse. 
Adisorn Sermchaiwong, senior executive vice president of CIMB Thai Bank, said it had been assessing the impacts of the prolonged protests on its retail customers. 
While demand for new loans has dropped, retail customers are getting slower with their debt payments, especially for personal loans. 
The bank has pursued debt collection more frequently and may review its loan targets again after the election.
Jirachayuth Amyongka, senior executive vice president for commercial banking at CIMB Thai, said its SME customers had not yet been affected much by the protests and repayment schedules remained unchanged. 
However, customers have been requesting higher loan limits as they start seeing a liquidity crunch from slower sales.
Limit to stay 
“The bank may not raise the limits, but will monitor their status and need for assistance. If it looks as though customers cannot cope with their financial difficulties, there will be extensions of debt-repayment schedules on a case-by-case basis,” he said. 
Thun Reansuwan, first executive vice president of Siam Commercial Bank, said there had clearly been a reduction of SMEs’ revenue, and more debt defaults had been seen since late last year because of the economic slowdown. 
SMEs rely largely on domestic consumption, he said, adding that some stimulus had disappeared as a result of state investment drying up. Less spending affected many SMEs in the trading and manufacturing sectors.
“Economic fundamentals have slowed greatly. We have to see how long this will continue. 
Unrest now remains the major factor causing economic uncertainty and an unclear future. SMEs will likely find this a trying year,” Thun said.
SCB has been trying to visit customers since late last year, asking them if they need help. These visits have found that SMEs are experiencing liquidity squeezes from large inventories and high fixed costs.
Chain reaction 
Thun expressed concern over a chain reaction that could start from struggling SMEs and retail customers. 
“I see a chance for the whole system’s NPLs to rise. SCB’s loan targets this year are close to the market average. Now, the bank’s loan portfolio totals Bt300 billion,” he said.
He conceded that SCB was revising its loan targets along with the rapidly changing situation. It does these revisions every three months. 
“The bank’s current strategy is to give as much assistance and flexibility as possible to customers, while taking more precautions. 
“We receive new customers with more caution. Our loan conditions have not changed much, focusing on customers’ cash flow, business potential and business forecasts.” 
A spokesman for Bank of Ayudhya agreed that small businesses were starting to face tighter liquidity, resulting in later payments on their loans.  He expects the picture to become clearer in the next three months.
Some customers have asked for the bank’s assistance with payment rescheduling, he said, but added that if the political situation ends soon, that would be positive for business. 
SME customers in tourism and hotel businesses have been affected the most.
 He said that this year’s target for SME loan growth was 13 per cent. Although there has been an apparent slowdown in new investment, the bank’s target remained unchanged.
 It focuses on supply chains serving Japanese companies.
At the end of 2013, the bank’s NPL rate in the SME portfolio was less than 1 per cent. 
This year, it is focusing more on medium-sized enterprises and less on the smaller ones to make sure NPLs are kept under control.