26 November, 2009
Banks unfit for microfinance business
Commercial banks said they would have to restructure if they were to provide microfinance services as envisioned under the central bank's plan for the industry.
The Financial Master Plan II of the Bank of Thailand, which will be implemented from 2010 to 2014, aims to increase grass-roots people's access to loans. To this end, commercial banks are encouraged to operate microfinance businesses.
Prasarn Trairatvorakul, president of Kasikornbank, said that the bank would lend personal loans of Bt300,000 to Bt500,000 to each borrower, as loans any smaller would not generate returns sufficient to cover operating costs. He said the bank had to pay salaries of more than Bt10,000 per person per month, but gained net interest margin of only Bt4,000 per year for lending Bt100,000, or about Bt360 per month.
"Special institutions are necessary for lending to very small businesses, such as Grameen Bank in Bangladesh, which relies on local people in each community for operation and control, so they can save operating costs," said Prasarn.
To successfully lend on such a tiny scale, the bank would have to reorganise its structure, he said.
Kannikar Chalitaporn, president of Siam Commercial Bank, agreed that banks would have to reorganise to provide microfinancing. This is no easy task, she said.
Rather, maintaining existing businesses will ensure business growth, given that the bank does not anticipate any negative impacts from higher competition as a result of the Financial Master Plan, Kannikar said.
"If we embarked on microfinance right now, we might be able to lend, but we wouldn't get any money back. Therefore, a special type of organisation must be established for this particular responsibility," she added.
The Financial Master Plan II is separated into three phases. The first - to be implemented in 2010 and 2011 - will focus on merging finance companies and allowing subsidiaries of foreign banks to open two more branches in the country. Retail banks will be allowed to upgrade to commercial banks but will be required to have minimum capital of Bt10 billion.
In the second phase, (2012-2013), foreign banks' subsidiaries will be allowed to open an additional 20 branches in the country and increase the number of ATMs to 20.
In the third phase (2013-2014), the central bank will consider if there are any financial services that are still not adequately provided by Thai commercial banks. If there are, it may allow foreign banks' subsidiaries to provide these services.
Source: The Nation
The Financial Master Plan II of the Bank of Thailand, which will be implemented from 2010 to 2014, aims to increase grass-roots people's access to loans. To this end, commercial banks are encouraged to operate microfinance businesses.
Prasarn Trairatvorakul, president of Kasikornbank, said that the bank would lend personal loans of Bt300,000 to Bt500,000 to each borrower, as loans any smaller would not generate returns sufficient to cover operating costs. He said the bank had to pay salaries of more than Bt10,000 per person per month, but gained net interest margin of only Bt4,000 per year for lending Bt100,000, or about Bt360 per month.
"Special institutions are necessary for lending to very small businesses, such as Grameen Bank in Bangladesh, which relies on local people in each community for operation and control, so they can save operating costs," said Prasarn.
To successfully lend on such a tiny scale, the bank would have to reorganise its structure, he said.
Kannikar Chalitaporn, president of Siam Commercial Bank, agreed that banks would have to reorganise to provide microfinancing. This is no easy task, she said.
Rather, maintaining existing businesses will ensure business growth, given that the bank does not anticipate any negative impacts from higher competition as a result of the Financial Master Plan, Kannikar said.
"If we embarked on microfinance right now, we might be able to lend, but we wouldn't get any money back. Therefore, a special type of organisation must be established for this particular responsibility," she added.
The Financial Master Plan II is separated into three phases. The first - to be implemented in 2010 and 2011 - will focus on merging finance companies and allowing subsidiaries of foreign banks to open two more branches in the country. Retail banks will be allowed to upgrade to commercial banks but will be required to have minimum capital of Bt10 billion.
In the second phase, (2012-2013), foreign banks' subsidiaries will be allowed to open an additional 20 branches in the country and increase the number of ATMs to 20.
In the third phase (2013-2014), the central bank will consider if there are any financial services that are still not adequately provided by Thai commercial banks. If there are, it may allow foreign banks' subsidiaries to provide these services.
Source: The Nation
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