Thailand's banks are expected to lend more to SMEs next year due to new Basel requirements.
Basel III will raise the minimum Tier-1 capital ratio to 6 percent from 4 percent next year. The more banks lend to corporations, the more their capital will be eaten up.
Furthermore, corporate demand for bank credit would not be as brisk as before because companies can raise funds through the capital market.
Corporations can mobilise funds through many channels such as debentures, initial public offerings and infrastructure funds. Corporations in the solar farm business are expected to launch infrastructure funds next year.
To sustain high returns, banks have to build up their SME portfolio, while the urbanisation trend gives banks more opportunities to extend credit to SMEs, said Kevalin Wangpichayasuk, head of money and banking research at Kasikorn Research Centre.
Yokporn Tantisawetrat, senior executive vice president and chief risk officer of Siam Commercial Bank, said it is possible that banks will shift to lending to SMEs and retail customers rather than corporations due to the arrival of Basel III.
If banks do not change their business direction, they would see their return on equity decline because Basel III, which sets the minimum capital adequacy ratio at 8.5 percent, will push up the cost of banks.
Many banks are revising their business models to prepare for the impact of Basel III. SME lending is one of their priorities, he added.
SCB president Kannikar Chalitaporn said earlier that the bank plans to increase the proportion of SME and retail loans.
Krungthai Bank, Thanachart Bank and Kiatnakin Bank are among the banks that would aggressively chase SMEs loans next year.
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