Session 3 :Bridging Financing Gaps Credit Guarantee System

Mr. Kriengkrai Chaisiriwongsuk Vice President, Marketing & Product Development Department

Thai Credit Guarantee Corporation ( TCG )

2

Landscape of SME Sector

Developing Countries

-No. of SMEs: 25-30 mil. formal SMEs 55-70 mil. formal microenterprises 285-345 mil. informal enterprises -Employment: 45% of total (formal SMEs) -GDP contribution: 33% of GDP (formal SMEs) -Financial access: 45-55% of formal SMEs 28-35% of all MSMEs

ASEAN (10)

-No. of SMEs: over 96% of all enterprises -Employment: 50-95% of total -GDP contribution: 30-53% of GDP -Exports: 19-31% of total values -Financial access: n/a,

APEC (21)

-No. of SMEs: over 90% of all enterprises -Employment: 60-80% of total -Productivity: 50% of sales & added value -Exports: about 30% of total values -Financial access: n/a,

* Brunei, Indonesia, Malaysia, Philippines, Singapore, Thailand, and Viet Nam

Sources: Developing Countries: GPFI (2011), “Report to the Leaders”, G20 Leaders Summit, Cannes APEC: official website (http://apec.org); APEC-SMEWG (2003), ‘APEC Informatization Survey for Small and Medium Enterprises’, p.3 [productivity] ASEAN: ASEAN (2010), “ASEAN Strategic Action Plan for SME Development”, p.2, Jakarta

*

3

Financial Institutions

Financial Institutions

Adverse selection

Moral hazard

Monitoring cost

Info. cost

Supply-demand gap of SME

Finance

Information Asymmetry

SMEs’ Low Financial

Accessibility

Obstacles to access finance of Thai SMEs

(1) Information asymmetries between lender & borrower

(2) Lack a sufficient track record

(3) Insufficient Collateral

Government’s Guarantee Mechanism and SMEs’ Access to Finance

4

Comparison of Credit Guarantee Scheme by Type

Mutual Guarantee Public Guarantee I Public Guarantee II

Operating Entity Company / Group Government Government

Guarantee Provided for

Member Company Unspecified Unspecified

Reputability Low High Medium

Guarantee Amount Low High Medium

Credit Check/ Guarantee Review by

Guarantee Agency Guarantee Agency

Entrusted Bank

Utilization Medium High Low

Region Europe Asia America

5

Overview of Credit Guarantee in Asia

Credit guarantee as a popular tool to improve SME access to finance in line with national SME policies

Partially or fully government owned specialized institutions SMEs as target clients for government programs Supervised by Finance/Line Ministry or Central Bank

Risk-sharing arrangement Fully / Partial credit guarantee (with/without collateral) First Loss Guarantee

Centralized system Regional CG arrangement yet to be established (excl. JAP & KOR)

Credit insurance Re-guarantee system yet to be established (excl. JAP & KOR)

Source : ADB

6

Guaranteed Loan amount as percentage of GDP

7

Medium

(MEs),

0.02 M.

Micro and

Small

(SEs),

2.74 M.

Source : BOT

Can

borrow

1.16 M.

Cannot

borrow

1.6 M.

only 42% of

SEs (Small)

eligible to

borrow from

FI

SMEs 2.76 M.

Access to finance of SMEs in Thailand

8

Guideline for supporting SMEs from THAI government

Government Tools

Efficient Tool for government to alleviate SME funding constraint

Other Subsidies (Tax-exempt credit)

Interest Rate Subsidy Direct Loan

Credit Guarantee

• To increase SME Lending, Government needs to increase the banks’ return.

• Credit Guarantee directly raises the bank’s return and address the rationing problem

Result from BOT Symposium 2014

9

Profile of TCG (As of May 31,2015)

Legal Status

Establishment

Capital Fund

Note: Exchange rate as June 16, 2015 USD 1 = 33.84 THB

Outstanding Guarantees

Specialized Financial Institute and non-profit organization under the supervision of the Ministry of Finance

December 1991

THB 6,702.47 Million (USD 198.06 Million)

THB 284,165 Million (USD 8,397 Million) No. of Issued L/G: 110,344

Organization

Employee

Head Office: 19 Departments Regional Offices: 11

264

10

Thai Credit Guarantee System

Bank SMEs

Public Policies, Capital and Loss Compensation

1 Loan requests

Loans disbursement 4

Application for Guarantee 2

Issuance of Letter of Guarantee

3 Claim submission when legal action is taken against the borrower

5

Claim payment 6

11

PGS 4 Start-Up (S-12) Halal iBank BIG5, PIL

(1992-1999)

(2000-2006)

(2004-2008)

Normal

MOU

RP

PGS 1 Bilateral 1

PGS 3 F11 SME Bank

PGS 5 Phase I

Individual Guarantee

100% Coverage

Phase II Risk

Participation 50% Coverage

Phase III Portfolio

Guarantee 8.5-30% Coverage (2012)

(2011)

(2009) (2010)

PGS 2 Bilateral 2

(2013) (2014)

PGS 5 OTOP Micro

Products Development

PGS is Portfolio Guarantee Scheme : Guarantee SME loans as a port of each bank. Highlight: • Faster: Approved in 3 days • Not require provision for banks on guarantee portion

Transfer NPL by PGS

Uncontrollable Risk factor Risk

acceptance NPL <10%

0 -18% NPL

<10%

0 -18%

TCG

10%

Bank accept NPL <10%

• Dynamic market • Economic crisis • Politic • Moral hazard • Adverse

Bank not comfortable to lend

Transfer NPL by PGS

Bank comfortable to lend

NPL 28%

Max NPL 18%

5%

Remaining NPL 0-10%

Incase NPL 28%

0%

5%

10%

NPL 23%

NPL ≤18%

Net NPL

0%

Individual Portfolio

PGS

Concept : Portfolio Guarantee Scheme

Re-Guarantee Guarantee

12

First Loss Guarante

e

Proportion of liable For Claim Payment of PGS 5

16 20 0

50%

100%

50%

100%

0% Limit guarantee of this Port

7- year credit guarantee is amount of THB 1000 MB. If average each case is THB 1 MB. and total is 1000 case as 100% of port)

100

Prop

ortio

n of

liab

le fo

r cla

im

paym

ent

Conclusion: TCG’s Claim payment is not over 18.0%

– If 160 cases default during 7 year-guarantee period that TCG paid 100% for claim payment (Amount of THB 160 MB.)

– Another 40 cases (The 161-200 Case) TCG would pay at 50% (THB 0.5 MB per case that totally is THB 20 MB.)

13

14

Evolution of TCG’s Products during 1991-2014

0.10 Million

0.13 Million

330,436 MTHB

391,486 MTHB

243,626 MTHB

269,535 MTHB

8.9%

11.0% 10.4% 9.7%

12.0%

14.1%

18.9%

10.2%

6.1% 4.9%

3.7% 3.9% 5.84%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

-

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

450,000

LG วงเงนิสะสม ภาระคํา้ประกนั % NPG

1st Period Scheme Normal,

MOU, NPL Coverage

Ratio 100%

2st Period Scheme RP Coverage

Ratio 50%

3st Period Scheme

PGS Coverage

Ratio 15.5%

Million Baht

Sub Prime Crisis

Major Flood in 2011

Political unrest

Accumulated Outstanding Guarantee

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Accumulated

Guarantee Approved

15

Cumulative Guarantee Approval: Classified by sector (as of May 2015 )

Unit: Billion THB Unit: No. of Issued L/G

70.55 51.31

44.92 42.59 41.62

29.55 28.40

16.79 16.77

14.74 11.67 11.62

10.06 9.06 8.83

7.12 4.46 3.01

2.71

Service

Manufacturing and Other

Steel, Metal Products and…

Food and Beverage

Agriculture

Chemical and

Automotive

Electrical Appliances and

Consumer Products

Textile and Garment

Wood and Wooden Products

Pulp and Printed Material

Plastic and Plastic Products

Petrochemical and Energy

Gem and Decorations

Other Mineral Products

Rubber and Rubber Products

Ceramic, Glass and Plate of

Shoes and Lether Products

26,984 19,250

14,062 13,747

14,737 10,183 10,671

5,478 7,518 6,451

4,121 4,107

2,827 2,582 2,492

1,999 1,325 1,034

1,109

Service

Manufacturing and Other

Steel, Metal Products and…

Food and Beverage

Agriculture

Chemical and

Automotive

Electrical Appliances and

Consumer Products

Textile and Garment

Wood and Wooden Products

Pulp and Printed Material

Plastic and Plastic Products

Petrochemical and Energy

Gem and Decorations

Other Mineral Products

Rubber and Rubber Products

Ceramic, Glass and Plate of

Shoes and Lether Products

Longan Example

17

• Farmer • Retailer

Longan Examples

Middleman/Broker

Longan farming is seasonal agricultural business.

• Longan price is low during longan season due to large supply • Farmer and retailer are forced by the middleman/broker to sell at low price

Longan Drying Plant

Deposit

Bank grants 1 MTHB

Credit Guarantee = 2 MTHB

Guarantee Mechanism for Longan Farmers

SMEs need as much loan as possible

Cash 1 MTHB

Loan = 3 MTHB

Longan Farming

Farmer: • Sufficient fund • No rush for selling due to the use of alternate preservation

Buyer: • Sufficient fund • High purchasing power 18

Price Comparison

0

10

20

30

40

50

June JUL AUG SEP October November

Normal Price

Longan Season

19

Month

Baht/Kilogram

• SMEs (Buyer/seller) will have sufficient fund to carry on their businesses. • The agricultural prices will not fall sharply due to suitable level of demand and supply. • Assist SMEs related in agriculture in preparing for the

THANK YOU