Ministry to cap SME Bank loans at Bt15m per borrower

The Finance Ministry plans to limit the Small and Medium Enterprise Development Bank of Thailand's new loans to Bt15 million per borrower after the bank extended loans worth Bt800 million to Bt900 million apiece to large borrowers over the past three years, causing a sharp rise in its non-performing loans (NPLs).

Permanent secretary Areepong Bhoocha-oom yesterday said the Fiscal Policy Office, which is responsible for supervising and rehabilitating SME Bank, had given the green light to the institution's three-year rehabilitation plan.

Under the plan, the Finance Ministry, which is SME Bank's major shareholder, would pump new capital of Bt555 million into the bank, which would its increase its capital/risk-assets ratio to about 4 per cent from the current level of 1 per cent. The new capital would be aside from the government's fiscal 2013 budget.

"It's a plan we can support. We will wait for the plan to be forwarded to the bank's board, and it will then be forwarded to the Finance Ministry for approval. After that, the new capital will be put in," Areepong said.

The planned additional capital will enable SME Bank to extend new loans. If the plan goes as expected for the Bt10.7-billion bad-debt restructuring this year, the capital/risk-assets ratio will rise to about 7-8 per cent.

SME Bank's NPLs account for Bt32 billion, or about 30 per cent of its outstanding loans of Bt96 billion to Bt97 billion.

Under the rehab plan, the bank will focus on SMEs with a loan limit of Bt15 billion per borrower, bad-debt management, enhancement of its operational efficiency and restructuring of the organisational structure.

The bank will also curb its borrowers' working capital at Bt200 million, with no refinancing from other banks. A risk-management unit for lending will also be set up.

The first year of the plan targets reducing NPLs by about Bt10 billion, with a further reduction of between Bt8million and Bt10 billion in the third year, and the NPL level at the end of the third year being no more than Bt10 billion. This would be done through NPL classification and grading, and improvement of the internal process for debt collection.

Pinyo Tanviset, chairman of the committee supervising and monitoring SME Bank's development of loan quality and NPL resolution, said an in-depth study of the institution's huge debt problem had been examining the causes and those involved, amongst other things.

The initial finding is that most of the bank's NPLs were the result of large loan extension over the past three years, said Pinyo, who is also an adviser to the deputy finance minister. The 100 largest borrowers had been granted loans averaging Bt800 million to Bt900 million each, many of which had gone sour.

Naris Chaiyasoot, chairman of the SME Bank board and director-general of the Treasury Department, said a section of the bank's NPLs had come from public-service accounts under several governments, with most of the lending undertaken without collateral.

Parichatara L Sirivong, acting president of SME Bank, said the plan under discussion with the Finance Ministry was to borrow Bt5 billion to raise the capital/risk-assets ratio, which would allow it to operate on a more solid footing. If the planned rehabilitation went ahead as expected this year, the bank would likely see a profit of about Bt100 million, she said.

Three subcommittees have been established by the ministry for supervising and monitoring SME Bank's rehabilitation plan. Each has to report to the deputy finance minister on a weekly basis.

One sub-panel supervises and monitors the bank's financial plan, while another is tasked with loan-quality improvement and NPL solutions, and the third with the bank's organisational management and restructuring.