Loan guarantees to stimulate
new loans and retain jobs
The recapitalization of
Small Business Credit Guarantee Corporation (SBCG)
By Jon Fernquest 
More information is available today on the
recapitalisation of state run banks in Thailand.Bank recapitalisation will lead to more loans and fewer employee lay offs.
Here are the details:
SBCG cash could save SME jobs
30 billion baht more in credit guaranteesBy: WICHIT CHANTANUSORNSIRI
13/02/09
The new capital granted to the Small Business Credit Guarantee Corporation (SBCG) is likely to help save 300,000 jobs provided that other economic stimulus measures are implemented.
SBCG president Taveesak Foongkiatcharoen said the corporation could guarantee credit worth 10 times its capital, or 30 billion baht. With the new capital, the SBCG will have a capacity to guarantee 43 billion baht worth of credit, or equivalent to a total credit line of 129 billion baht.
Since the SBCG generally offers guarantees at two million baht each, it can assist a total of 15,000 small and medium-sized companies. When taking into account the supply chain where each SME may involve 20 workers, this scheme could keep 300,000 jobs.
Under its terms, the SBCG would guarantee 25-30% of the credit line but not more than 20 million baht each. It charges a 1.75% guarantee fee based on the amount of credit and takes a maximum of 35 days to process applications by commercial banks.
Mr Taveesak said the SBCG would share losses with banks in case the loans become non-performing. If the non-performing loans (NPLs) do not exceed 12% of the total amount, the corporation will accept all risks. If the NPLs are between 12% and 14%, the SBCG will shoulder 75% of the losses and for NPLs of 14-18%, the losses would be shared equally. In the worst case, the government will compensate the SBCG up to two billion baht which should be adequate.
He said the focus would be operators in the tourism and export industries which had been directly affected by the global economic recession. Applicants must have assets, excluding land, of not more than 200 million baht and the ability to repay the loans.
stimulate - encourage activity, growth,
and development (See glossary)
capital - money invested in a business
bank capital - the money of owners (equity) invested in a business (bank capital is highly regulated for safety reasons)
capitalisation - putting new capital into a company
bank recapitalisation - putting capital back into a bank (when non-performing loans (NPLs) increase in a bank, assets shrink and capital shrinks, so new capital needs to be put back into the bank)
granted - officially given
Small Business Credit Guarantee Corporation (SBCG) - a Thai company established in 1991 to provide "credit guarantees for viable small enterprises which do not have enough collateral to enable them to obtain sufficient credit from the financial institutions" (See website and list of similar companies in other countries)
employee lay offs - when employees lose their job because there is no more work available for them to do (during a bad economy)
X provided that Y - X will happen if Y happens
economic stimulus measures - actions taken to get the economy movign again and growing
guarantee credit, guarantee loans - when someone promises to pay back a loan if the borrower cannot pay money back
capacity to do Y - the ability to do
a credit line - money available to be borrowed (if you need it)
supply chain - the materials moving from supplier to manufacturer to wholesaler to retailer to consumer in the steps needed to produce a final good from raw materials (See Wikipedia)
process applications -
commercial banks - profit-making privately owned banks that take deposits (See list of banks in Thailand)
taking into account X - including factor X in your analysis or calculations
a factor - one of the things affected an event or decision
non-performing loans (NPLs) - a loan that the borrower has stopped paying back to the bank (default)
shoulder 75% of the losses - pay for 75% of the losses (the other person has to pay for the rest)
in the worst case - if everything goes wrong, the worst that could happen
compensate - pay for a loss or damage
adequate - good enough to do the job
capital - money invested in a business
bank capital - the money of owners (equity) invested in a business (bank capital is highly regulated for safety reasons)
capitalisation - putting new capital into a company
bank recapitalisation - putting capital back into a bank (when non-performing loans (NPLs) increase in a bank, assets shrink and capital shrinks, so new capital needs to be put back into the bank)
granted - officially given
Small Business Credit Guarantee Corporation (SBCG) - a Thai company established in 1991 to provide "credit guarantees for viable small enterprises which do not have enough collateral to enable them to obtain sufficient credit from the financial institutions" (See website and list of similar companies in other countries)
employee lay offs - when employees lose their job because there is no more work available for them to do (during a bad economy)
X provided that Y - X will happen if Y happens
economic stimulus measures - actions taken to get the economy movign again and growing
guarantee credit, guarantee loans - when someone promises to pay back a loan if the borrower cannot pay money back
capacity to do Y - the ability to do
a credit line - money available to be borrowed (if you need it)
supply chain - the materials moving from supplier to manufacturer to wholesaler to retailer to consumer in the steps needed to produce a final good from raw materials (See Wikipedia)
process applications -
commercial banks - profit-making privately owned banks that take deposits (See list of banks in Thailand)
taking into account X - including factor X in your analysis or calculations
a factor - one of the things affected an event or decision
non-performing loans (NPLs) - a loan that the borrower has stopped paying back to the bank (default)
shoulder 75% of the losses - pay for 75% of the losses (the other person has to pay for the rest)
in the worst case - if everything goes wrong, the worst that could happen
compensate - pay for a loss or damage
adequate - good enough to do the job
The Bank of Thailand said the new policy for the SBCG should help spur loan growth within the economy.
Krirk Vanikkul, an assistant governor for the Bank of Thailand, welcomed the government's policy as a significant step in helping ease risk concerns among local lenders.
"It's a good policy, and should encourage banks to be more aggressive in lending as the government will now take up part of the credit risk," he said.
Somboon Chitphentom, director of the central bank's Risk Management Policy Office, agreed the portfolio guarantee scheme used by the SBCG should help free up credit access for small businesses.
Even businesses with substandard performances that typically would not be able to access credit should now be able to borrow thanks to the risk-sharing arrangement offered by the state.
"This guarantee model has been under study for some time. It was developed based on discussions between the SBCG and local banks about current obstacles in lending," Mr Somboon said.
He said authorities preferred risk-sharing to a soft-loan programme, which is open to corruption.
In any case, Mr Somboon said it was difficult to estimate how quickly the new loans would be made to the SMEs.
spur loan growth -
cause loans to grow, cause there to be more loans
a significant step in Y - an important step in process Y
aggressive - forceful, determined, and eager to succeed (See glossary)
risk management - developing and introducing plans for minimize the negative effects of risks on a bank's financial results and capital (See explanation)
liquidity risk - the risk that a bank is not able to pay back money to depositors (bank run) or money it borrowed from other banks either domestically or internationally
credit risk - the risk of borrowers not paying back their loans to the bank
market risk - risk from changing interest rates and exchange rates
portfolio - a set of investments owned by a person or organization
portfolio guarantee scheme - the system for guranteeing loans in a bank's loans (portfolio)
substandard performances - the business did not make lower profit than the standards require
able to access credit - able to get a loan
risk-sharing arrangement - when the government shares the risk of loans with private banks (in order to encourage lending during bad economic times)
obstacles in lending - problems in lending (problems that must be solved before loans can be made)
soft-loan programme - a loan with easy conditions for the borrower such as a low interest rate, a long pay back period
a significant step in Y - an important step in process Y
aggressive - forceful, determined, and eager to succeed (See glossary)
risk management - developing and introducing plans for minimize the negative effects of risks on a bank's financial results and capital (See explanation)
liquidity risk - the risk that a bank is not able to pay back money to depositors (bank run) or money it borrowed from other banks either domestically or internationally
credit risk - the risk of borrowers not paying back their loans to the bank
market risk - risk from changing interest rates and exchange rates
portfolio - a set of investments owned by a person or organization
portfolio guarantee scheme - the system for guranteeing loans in a bank's loans (portfolio)
substandard performances - the business did not make lower profit than the standards require
able to access credit - able to get a loan
risk-sharing arrangement - when the government shares the risk of loans with private banks (in order to encourage lending during bad economic times)
obstacles in lending - problems in lending (problems that must be solved before loans can be made)
soft-loan programme - a loan with easy conditions for the borrower such as a low interest rate, a long pay back period
(Source: Bangkok Post, business, 13/02/09, WICHIT CHANTANUSORNSIRI, SBCG cash could save SME jobs , 30 billion baht more in credit guarantees , link)
