State-owned Thai Credit Guarantee Corporation (TCG) wants to extend 100 billion baht in loan guarantees for small and medium-sized enterprises (SMEs) in 2020, up about 10% from this year.

Reaching the targets this year and next year will be a challenge, as Bank of Thailand data shows that financial institutions’ loan rejection rates are surging to a record high of 40% from 26% previously, said TCG president Rak Vorrakitpokatorn. Banks are concerned about risk because people are not spending as much, while the stronger baht is taking a bite out of export revenue, he said. Loan demand is strong this year, but banks are reluctant to lend, so the TCG is considering a loan guarantee scheme as high loan denial rates persist, Mr Rak said.

To keep a lid on bad loans, the TCG is negotiating with financial institutions to help turn defaulted loans that have not been classified as non-performing loans (NPLs) to performing loans again, which should assist troubled borrowers running businesses.

Financial institutions typically forward soured loans with credit guarantees to the TCG without discussing debt restructuring with the borrowers. This process benefits NPLs guaranteed by the TCG, lowering the agency’s new bad-loan ratio to 0.89% a year from 1% in the past.

The TCG’s credit guarantees average 10 billion baht a month, up from 6-7 billion baht in the past, thanks to the 150-billion-baht Portfolio Guarantee Scheme 8 (PGS8). This year’s target of 90 billion baht worth of credit guarantees is expected to be met after issuance of 80 billion baht worth of guarantees so far in 2019. The group issued 88 billion baht in credit guarantees in 2018, Mr Rak said. He expressed satisfaction with the level of loan guarantees, given slower economic growth than last year. Under PGS8, TCG will be required to pay 30% on soured loan guarantees, up from 22% at present, while SMEs will be entitled to a 1.75% annual fee waiver for two years.

— Bangkok Post

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