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Soft loans tweaked for SME access

THAILAND: The Finance Ministry is preparing to amend the soft loan decree to allow greater low-interest loan access for small and medium-sized enterprises (SMEs).

economics
By Bangkok Post

Wednesday 3 February 2021, 03:33PM


Local vendors sit idle at a clothes market in Victory Monument as the outbreak surged again. Photo:  Nutthawat Wicheanbut.

Local vendors sit idle at a clothes market in Victory Monument as the outbreak surged again. Photo: Nutthawat Wicheanbut.

The ministry and the Bank of Thailand have agreed in principle to amend the decree, but a proposal has to be submitted to the parliament’s commission committee before any amendment can be made, said Arkhom Termpittayapaisith, the finance minister.

Ministry officials are studying details on criteria amendment and the amendment process is expected to commence before September, said Mr Arkhom.

Paiboon Nititawan, deputy leader of the ruling Palang Pracharath Party, earlier proposed parliament amend the soft loan decree on the grounds that soft loan conditions prevent many SMEs from accessing low-interest loans.

According to Mr Paiboon, some of the obstacles include financial institutions being required to receive soft loans from the central bank at an interest rate of 0.1% to lend to customers at an interest rate of up to 2%.

This 2% interest ceiling should be raised in order to encourage banks to provide loans to SMEs, because banks’ financial costs already exceed 2%, he said.

Another hindrance is a condition stipulating banks only provide soft loans to their own customer base, with the maximum drawdown for the soft loans at 20% of each bank’s outstanding loans as of year-end 2019.

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This condition has led to SMEs that are not integrated into the formal banking system facing difficulties in obtaining the soft loans, while the 20% maximum drawdown rate of total outstanding loans limits the credit line of soft loans, said Mr Paiboon.

The soft loan programme has been slow to gain traction because of what businesses say were tough lending conditions.

Of the total B500 billion in available soft loans, around 120bn has been disbursed to SME borrowers.

The central bank offers the B500bn in soft loans at 0.01% interest to financial institutions for two years to re-lend to SMEs, with a maximum credit line of B500 million at 2% interest.

The government absorbs the interest charges for six months for SMEs that receive soft loans.

To be eligible, SMEs must operate domestically, be non-listed companies, have a credit line of up to B500mn from financial institutions and continue to service debt or have made late payments of less than 90 days at the end of 2019.

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