TRIS Rating Co., Ltd. has affirmed the rating of Small and Medium Enterprise Development Bank of Thailand (SME Bank) and the rating of its Bt5,000 million senior debentures (SME087A) at "A+" with "stable" outlook. The ratings and outlook are based on SME Bank's role as a policy-driven government institution to finance small and medium-sized business enterprises, and its 95% ownership by government organizations. The ratings are enhanced from the stand-alone rating of SME Bank due to the financial support SME Bank will likely receive from the government during any adverse situation. However, SME Bank needs more time to improve the productivity and efficiency of its operations. The bank is in the process of gradually reorganizing its operations to enhance operating efficiency by developing the quality of its human resources.
TRIS Rating reported that SME Bank was constituted as the Small Industry Finance Corporation (SIFC) under the Small Industry Finance Corporation Act B.E. 2534 (1991). The Ministry of Finance (MOF) injected Bt1,000 million in new capital into the bank in 1999 and another Bt1,500 million in 2001, thereby increasing SME Bank's paid-up capital from Bt300 million to Bt2,800 million. Furthermore, in December 2002, the government enacted the Small and Medium Enterprise Development Bank of Thailand Act and transferred all assets and operations of SIFC to the new entity, SME Bank. SME Bank's main objective is to support the government's policy to improve Thailand's grassroots economic system by financing and assisting small- and medium-sized businesses. While the government has guaranteed only parts of, not all of, SME Bank's debt, it implicitly supports SME Bank as an important arm to implement its policies.
Since November 2003, the bank's loan departments have been reorganized into seven key clusters (food, auto, and manufacturing, to name a few) to better serve the government-supported business sectors. The loan approval process has been improved in terms of both project feasibility analysis and approval times. These actions should help SME Bank grow and improve its efficiency. In 2003, SME Bank approved Bt27,273 million of new loans or 91% of its budget of Bt30,000 million. At the end of December 2003, SME Bank's outstanding loans totaled Bt18,483 million, the growing rate of 63% from 2002 and accounted for 86% of Bt21,498 million total assets. The factoring business purchasing clients' trade invoices for cash at discounted prices grew by 189% in 2003, accounting for 42% of total new loan approvals. In the past, most of SME Bank's funds were borrowed from other state enterprises, while its capital was provided by the MOF. However, the issuance of Bt5,000 million in senior debentures without a government guarantee in 2003 decreased the funding portion provided by government agencies from around 90% to 70%. The issuance of long-term debentures has also helped to lower its asset and liability mismatch.
TRIS Rating said as SME Bank's mission is to provide loans to small- and medium-sized businesses that may not have strong and sufficient credit profiles, SME Bank is inevitably exposed to lower loan quality than commercial banks. Its non-performing loans (NPL) to average loans ratio decreased from 26.0% in 2002 to 25.8% in 2003, compared with the improving trend of NPL ratio of the Thai commercial banking system, which reported an average NPL ratio of 14.6% in 2003.
Though SME Bank is a development bank and therefore is not subject to the Bank of Thailand (BOT) regulations, the bank complies, in practice, with the guidelines the BOT has set for commercial banks. The bank has a relatively short track record in managing a large loan portfolio, and this has caused the bank to face higher credit and operational risk than commercial banks. SME Bank needs more time to establish competencies and efficiency in a large-scale operation. Nevertheless, with its management team's effort, SME Bank has been able to earn satisfactory net profits, which improved from Bt84 million in 2002 to Bt188 million in 2003, as bank interest income increased when loans expanded. Meanwhile, the bank significantly decreased its operating expense ratio from 53.4% of total income in 2002 to 49.4% in 2003, which is approaching the 41.0% operating expense ratio for all Thai commercial banks in 2003, TRIS Rating said. -- End
Small and Medium Enterprise Development Bank of Thailand (SME Bank) Company Rating: Affirmed at A+ Issue Rating: SME087A: Bt5,000 million senior debentures due 2008 Affirmed at A+ Rating Outlook: Stable
TRIS Rating reported that SME Bank was constituted as the Small Industry Finance Corporation (SIFC) under the Small Industry Finance Corporation Act B.E. 2534 (1991). The Ministry of Finance (MOF) injected Bt1,000 million in new capital into the bank in 1999 and another Bt1,500 million in 2001, thereby increasing SME Bank's paid-up capital from Bt300 million to Bt2,800 million. Furthermore, in December 2002, the government enacted the Small and Medium Enterprise Development Bank of Thailand Act and transferred all assets and operations of SIFC to the new entity, SME Bank. SME Bank's main objective is to support the government's policy to improve Thailand's grassroots economic system by financing and assisting small- and medium-sized businesses. While the government has guaranteed only parts of, not all of, SME Bank's debt, it implicitly supports SME Bank as an important arm to implement its policies.
Since November 2003, the bank's loan departments have been reorganized into seven key clusters (food, auto, and manufacturing, to name a few) to better serve the government-supported business sectors. The loan approval process has been improved in terms of both project feasibility analysis and approval times. These actions should help SME Bank grow and improve its efficiency. In 2003, SME Bank approved Bt27,273 million of new loans or 91% of its budget of Bt30,000 million. At the end of December 2003, SME Bank's outstanding loans totaled Bt18,483 million, the growing rate of 63% from 2002 and accounted for 86% of Bt21,498 million total assets. The factoring business purchasing clients' trade invoices for cash at discounted prices grew by 189% in 2003, accounting for 42% of total new loan approvals. In the past, most of SME Bank's funds were borrowed from other state enterprises, while its capital was provided by the MOF. However, the issuance of Bt5,000 million in senior debentures without a government guarantee in 2003 decreased the funding portion provided by government agencies from around 90% to 70%. The issuance of long-term debentures has also helped to lower its asset and liability mismatch.
TRIS Rating said as SME Bank's mission is to provide loans to small- and medium-sized businesses that may not have strong and sufficient credit profiles, SME Bank is inevitably exposed to lower loan quality than commercial banks. Its non-performing loans (NPL) to average loans ratio decreased from 26.0% in 2002 to 25.8% in 2003, compared with the improving trend of NPL ratio of the Thai commercial banking system, which reported an average NPL ratio of 14.6% in 2003.
Though SME Bank is a development bank and therefore is not subject to the Bank of Thailand (BOT) regulations, the bank complies, in practice, with the guidelines the BOT has set for commercial banks. The bank has a relatively short track record in managing a large loan portfolio, and this has caused the bank to face higher credit and operational risk than commercial banks. SME Bank needs more time to establish competencies and efficiency in a large-scale operation. Nevertheless, with its management team's effort, SME Bank has been able to earn satisfactory net profits, which improved from Bt84 million in 2002 to Bt188 million in 2003, as bank interest income increased when loans expanded. Meanwhile, the bank significantly decreased its operating expense ratio from 53.4% of total income in 2002 to 49.4% in 2003, which is approaching the 41.0% operating expense ratio for all Thai commercial banks in 2003, TRIS Rating said. -- End
Small and Medium Enterprise Development Bank of Thailand (SME Bank) Company Rating: Affirmed at A+ Issue Rating: SME087A: Bt5,000 million senior debentures due 2008 Affirmed at A+ Rating Outlook: Stable