Thailand: BoT soft loans flounder on interest woes

• An interest rate incompatible with banks’ financial costs is the main reason the Bank of Thailand’s soft loan programme has floundered, according to a source at a state-owned financial institution.
• The central bank has been offering THB500bn in soft loans at 0.01% interest to financial institutions for two years to re-lend to small and medium-sized enterprises (SMEs), with a maximum credit line of THB500mn at 2% interest.
• The government will absorb 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 THB500mn from financial institutions, and continue to service debt or make late payments of less than 90 days at the end of 2019.
• The soft loan cost incurred by the central bank is 1 satang, and the central bank offers the loan to commercial bank at a cost of 2 satang in a bid for banks to relend to their own customers at no more than 2%, said a banking source speaking on condition of anonymity.
• Most banks do not want to offer the soft loans at a low interest rate, despite having a low lending cost, as their financial burdens exceed more than 2%, said the source.
• For instance, a medium-sized bank with a loan portfolio of no more than THB200bn would have an average financial cost at 2.5%.
• Banks also do not want to shoulder higher bad debts, as a rise in non-performing loans will compel them to set up higher reserves, which subsequently affect banks’ share prices.
• The capped interest for the soft loan scheme was previously set at 3%, but policymakers ultimately stipulated the interest to be no more than 2%.

External Link : https://www.bangkokpost.com/business/1992647/bot-soft-loans-flounder-on-interest-woes