The amended law governing the Thai Credit Guarantee Corporation (TCG), which will allow a state-owned agency to guarantee loans by non-bank institutions, is expected to substantially cut the interest costs for small and medium-sized enterprises (SMEs).
With the credit guarantee, around 1 million SMEs indebted to leasing, factoring and nanofinancing companies could enjoy lower interest rates, said president Nitid Manoonporn.
SME operators are now charged 20-30% interest per annum to secure loans from non-bank institutions.
The amended draft, which has won the cabinet's approval, is pending deliberation by the Office of the Council of State before being forwarded to the National Legislative Assembly (NLA). It is expected to come into force this year.
Given that SME operators who have borrowed from non-bank institutions always face higher risks than those who have secured loans from commercial banks, TCG is likely to impose higher annual credit guarantee fees than the regular rate -- 1.75% of the guaranteed amount -- he said.
During the six months to June, TCG provided loan guarantees worth 48 billion baht to 1,700 SME borrowers.
At the end of June, TCG's outstanding guarantees came to 333 billion baht for 167,000 borrowers, helping them get a combined 836 billion in loans. Its non-performing guarantee ratio stood at 10.6%, up from 8% at the end of last year.
TCG had already set aside full loan-loss provisions and is seeking to recover bad debts worth 20 billion baht.
The state-backed agency has only managed to recover around 200 million baht a year via debt collection efforts, and therefore plans to outsource those activities, he said. Mr Nitid added that after the amended law is approved, bad loans will be sold off to asset management companies, helping to bring down its non-performing guarantees.
Separately, he projects that the remaining 20 billion baht from a 100-billion-baht credit guarantee to SMEs under recent government stimulus measures will be taken out within two months.
Under the stimulus package, 100 billion baht in credit guarantees under the portfolio guarantee scheme (PGS) 5 have been offered for non-performing loan (NPL) coverage of up to 22.5% of the portfolio. It provides full NPL coverage for up to 15% of the portfolio and half coverage for 15-30% of the portfolio, with banks taking responsibility for the rest.
The cabinet recently agreed to push back the deadline to apply for the credit guarantee scheme to the end of December from June.