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Project Finance

Delay in re-start of BoI spooks banks

Demand for project financing may dry up until new govt

Demand for project financing might evaporate this year as some foreign companies shift their investment plans from Thailand to other Asean countries such as Indonesia because of the delayed formation of the Board of Investment.

The term of the BOI members expired last October and new members cannot be appointed because the ex officio chairwoman is the prime minister, who now is only a caretaker. There can be no movement until the country gets a new government.

The uncertainty over when the BOI can start approving project proposals again is shaking the confidence of investors even though Thailand remains a choice destination for them, Chansak Fuangfu, a senior executive vice president of Bangkok Bank, said yesterday.

BBL, the major player in the enterprise-lending market, might witness flat growth in loans this quarter because of the soft demand for long-term credit for investment.

Corporate customers can still draw down their credit lines to support their ongoing projects, while corporate demand for working capital depends on market sentiment, unlike small and medium-sized enterprises, which require working capital to smooth their operations, he said.

Many foreign investors are waiting on the sidelines to see how political developments unfold, as they like Thailand's infrastructure, but if the political unrest drags on much longer and the situation grows more tense, they will probably migrate to other countries, the bank fears.

Corporate demand for trade finance is unlikely to show a rise in line with the export situation. Exporters should refocus on Europe and the United States after relying more on China, whose economic growth has been stuttering, BBL believes.

The slowdown in corporate lending also came from reduced activities of companies that had aimed to launch projects ahead of the roll-out of the government's planned Bt2-trillion infrastructure and Bt350-billion water-management programmes.

Thanyalak Vacharachaisurapol, head of money and banking at Kasikorn Research Centre, said loans this year were expected to reach only Bt600 billion, the lowest level in five years, mainly because of lower demand from the retail industry. Instalment lenders will be hit the hardest.

KResearch had expected loans of the banking industry to expand by 6.5-9.5 per cent this year, but if the political unrest is not resolved, growth in gross domestic product will ease to 2.2-2.5 per cent from the expected 3 per cent and loan growth will be 6 per cent, she said.

Banks also have become stricter with loan requests after debt quality showed signs of going sour. Special-mention loans of hire-purchase and SME customers, that is, loans that have not been serviced for more than 30 days but not more than 90 days, are rising.

Special-mention loans increased to 2.4 per cent of the banking industry's loans last year. That was up from 2.2 per cent a year earlier. Special-mention retail loans, including instalment loans, went up to 3.5 per cent from 2.8 per cent. Instalment loans alone were up to 7.7 per cent from 6 per cent, while business loans edged up to 2 per cent from 1.9 per cent.

Corporations are the only engines of loan growth this year because of exports, which will spur trade finance. Corporations, however, have many sources of capital including the primary bond market.

KResearch expects corporate bond issues this year to reach Bt350 billion.

CP All, the operator of the 7-Eleven convenience-store chain, will issue secured and unsubordinated debentures worth up to Bt40 billion with four terms - three, five, seven and 12 months. Nine financial institutions are involved. Subscriptions open from March 24-26.

The proceeds will be used partly to refinance a Bt180-billion bridge loan that CP All last year used to acquire Siam Makro, after it issued debentures worth Bt50 billion last October for refinancing.


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