Improving Trade Finance Environment for SMEs

Transcription

1 Improving Trade Finance Environment for SMEs Situation, Solution and Recommendation KASIKORNBANK PLC. 17 May 2009

2 Agenda Thai SMEs Overview Thai SMEs under Global Economic Crisis 3 key players to support SMEs Bank State Agency International Intermediary Further Consideration

3 Agenda Thai SMEs Overview Thai SMEs under Global Economic Crisis 3 key players to support SMEs Bank State Agency International Intermediary Further Consideration

4 Thailand s Macroeconomic Snapshot Impact from Global Economic Crisis and Political Uncertainties F GDP Growth to -3.5 AVG. Brent Crude (USD/barrel) Private Consumption to -1.1 Investment to -6.1 Gov. Budget (% of GDP) to -4.5 Export Growth to Import Growth to Trade Balance (USD bn) Current Account (USD bn) Headline CPI Core CPI AVG. Unemployment (Thousands) ,500 1,700 Unemployment Rate (% of Labor Force) Note: Information as of Apr 16, 2009

5 SME Definition in Thailand 2 groups of SMEs market: Micro & Small Business and Medium Business Micro & Small # of Employee Fixed Assets (USD) Medium # of Employee Fixed Assets (USD) Manufacturing <= 50 <= 1.45M Trading - Retailing <= 25 <= 1.45M Trading - Wholesaling <= 15 <= 0.87M Service <= 50 <= 1.45M Manufacturing > > M Trading - Retailing >25-50 > M Trading - Wholesaling >15-30 > M Service > > M Remark: SMEs Definition from OSMEP (Office of Small and Medium Enterprises Promotion)

6 Importance of SMEs in Thai Economy SMEs play a significant role in Thai economy with 37.8% of GDP in 2008 GDP growth rate of SMEs averaged around 5% per annum, closed to national GDP National GDP Structure 2008 LE, 46.3% Farm sector, 11.6% Others, 4.3% SMEs, 37.8% Outlook for 2009 Contribution of SMEs is positively forecasted to be 39.1% of Thailand s GDP SME GDP is projected to be at -2.0% compared to national GDP at -6.0% to -3.5% Trends of SMEs Proportion and GDP Growth Rate in Data Source: White paper 2007 from OSMEP (Office of Small and Medium Enterprises Promotion)

7 Thai Economy and International Trade Thai economy is heavily trade-dependent (SME & LE) Trade Dependency (% of GDP) Exports Imports Total Trade %Growth Rate % % GDP Export Import Total Trade Total Trade as a percentage of GDP has continually risen to 129.6% in Trade value has risen in 2008 (16%) although Thailand s GDP growth rate dropped (to 2.5%) as a result of the global economic slowdown

8 Contribution of SMEs in International Trade Almost 30% of national trade value has been generated by SMEs 2007 (Billion) USD % SME Exports SME Imports SME Trade Volume National Exports National Imports National Trade Volume % of international trade value has been generated by SMEs, 88.1 bn USD in 2007 SME export growth had increased steadily during 2006 to 2007 SME import growth cooled substantially, in line with national imports value Trade Growth F SME Export Growth 16.5% 20.9% 9.0%* -11.4%* SME Import Growth 9.4% 0.2% n.a. n.a. Nat. Export Growth 16.9% 18.6% 15.6% -20 to -17%** Nat. Import Growth 9.0% 8.7% 27.7% -23 to -19%** Data Source: White paper 2007 and Survey Report; MOC s Trade Statistics. F: * OSMEP, as of Mar 2009; ** KResearch Forecasts

9 Agenda Thai SMEs Overview Thai SMEs under Global Economic Crisis 3 key players to support SMEs Bank State Agency International Intermediary Further Consideration

10 Key Concerns from Global Economic Crisis Macro Level Export Dependency Commodity Price Declines Loss from Carrying Inventory Liquidity Shortage Micro Level

11 Key Concerns from Global Economic Crisis Macro Level Export Dependency Commodity Price Declines Loss from Carrying Inventory Liquidity Shortage Micro Level

12 Export Dependency The top 3 most export dependent is likely to be severely affected by the current economic downturn particularly exacerbated by their major trade partners recession economy i.e. US and EU Most Affected Industries Textile Gems & Jewelry Agro-Industry 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Textile 31% 30% 22% 37% 39% 24% 48% 50% 26% 59% 41% 43% 28% 27% 34% 22% 4% 7% 5% 9% 3% 4% 4% 4% Gems and Jewelry Domestic (REAL) Indirect Export Export Import Industrial Agriculture Furniture & Wood Pulp & Paper / Printing 42% 27% 6% 25% Others Electronic and APP. 62% 64% 20% 27% 13% 3% 5% 6% Plastic Automotive and Parts Hardware 56% 20% 6% 18% *Definition of Export Dependable: Having high export portion compared to total sales revenue ** SME/ LE

13 Key Concerns from Global Economic Crisis Export Dependency Macro Level Commodity Price Declines Loss from Carrying Inventory Micro Level Liquidity Shortage

14 Commodity Price Declines Key commodity prices have plunged dramatically due to lower demand as a result of global economic crisis Steel Price Agriculture Prices Fell More Than 21% Q Q Zinc and Gold Prices Rice 1,080 USD USD Tapioca 2.50 THB / Kg THB / Kg. Smoked Sheet Rubber 90 THB / Kg THB / Kg. Palm 6.0 THB / Kg. 2.8 THB / Kg. Palm Oil 36 THB / Liter 17 THB / Liter Corn THB / Kg THB / Kg. Livestock Price This will likely affect farm incomes and profitability of the related industries. Remark: FX 1 USD = 31.5 THB

15 Key Concerns from Global Economic Crisis Macro Level Export Dependency Commodity Price Declines Loss from Carrying Inventory Micro Level Liquidity Shortage

16 Loss from Carrying Inventory High risk for industries which have high percentage of inventory / sales 60% 50% 40% 30% 20% 10% 0% -10% -20% -30% -40% -50% Change in Inventory Index (Q-o-Q) อาหารและเคร องด ม Food & Beverage กระดาษและผล ตภ ณฑ กระดาษ Pulp and Paper ผล ตภ ณฑ ยางและพลาสต ก Rubber Products & Plastic ผล ตภ ณฑ จากแร อโลหะ Non-Metal Products ผล ตโลหะข นม ลฐาน Metal Products ผล ตภ ณฑ ท ท าจากโลหะประด ษฐ Artificial Metal Products เคร องอ ปกรณ และการขนส งอ นๆ Transportation Equipments Q1/50 Q2/50 Q3/50 Q4/50 Q1/51 Q2/51 Q3/51 Most Affected Industries Real Estate Textile Gems and Jewelry Hardware Construction Materials Industrial Agriculture Food & Beverage Pulp & Paper / Printing Volatility of commodity prices will increase risk of loss from carrying inventory and difficulties in production and stock management * SME/ LE

17 Key Concerns from Global Economic Crisis Macro Level Export Dependency Commodity Price Declines Liquidity Shortage Loss from Carrying Inventory Micro Level

18 Liquidity Shortage Problem High D/E ratio but low current ratio industries would be affected SME BoL & KBank Most affected industries from Liquidity Shortage DE ratio Current ratio Impact Communication High Real Estate High Industrial Agriculture High Commerce High Agriculture High Furniture & Wood High Financial Institute High Automotive and Parts Moderate Hotels and Restaurants Moderate Plastic Moderate Transportation Moderate Hardware Moderate Textile Moderate

19 Impact of Global Economic Crisis on Export Industries Industrial Agriculture, Gems & Jewelry and Textile are highly affected Export Dependency Commodity Price Declining Loss from Carrying Inventory Liquidity Shortage Decreased sale volume Lower profitability High carry-cost Value depreciation More sufficient support needed 3 Impacts 120% 100% Industrial Agriculture 80% Furniture & Wood 60% Textile 40% Electronics & Appliances 20% Gems & Jewelry 0% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Export Dependable Dependency Remark : Percentage of above contribution are represented from KBank SME Portfolio Degrees of Commodity price declining, Inventory loss and Liquidity shortage being averaged under 3 Impacts factor

20 Agenda Thai SMEs Overview Thai SMEs under Global Economic Crisis 3 key players to support SMEs Bank State Agency International Intermediary Further Consideration

21 Three Key Players to Support SMEs Different Role and Action needed Bank State Agency Mitigate Impacts from Global Economic Crisis International Intermediary

22 Agenda Thai SMEs Overview Thai SMEs under Global Economic Crisis 3 key players to support SMEs Bank State Agency International Intermediary Further Consideration

23 Three Key Players to Support SMEs Local banks play significant role to facilitate SMEs needs Bank Supporting Solution and Initiative Business As Usual Recession Economy State Agency Mitigate Impacts from Global Economic Crisis International Intermediary

24 Customer Needs and Concerns: Business As Usual Top 5 concerns of SMEs based on customer research 1 Business knowledge for efficient business management 2 New market understanding and penetration 3 Knowledge related to international trade transaction 4 Business partner s risk information and risk protection tools 5 Sufficient funds for investment and working capital Data Source: * Trade Finance Customer Research, Aug 2008 April 2009, 780 SME samples

25 Customer Needs and Concerns: Recession Economy Lower trust among business partners as evidenced by the means of payment i.e. high advance payment and open account Low bargaining power and Lack of guarantee support from intermediary Importer Exporter Method of Payment Large Enterprise SMEs Large Enterprise SMEs LC (Letter of Credit) 23% 29% 17% 23% BC (Bill for Collection) 4% 5% 5% 7% Advance Payment 10% 40% 38% 10% Open Account 63% 26% 40% 60% Compared to Large Enterprise, SMEs importers are less competitive and it s getting worse due to recent recession Also, SMEs exporters have low bargaining power due to lack of trust among trade partners

26 Summary of Customer Needs and Concerns Business As Usual Period * Recession Economy Period 1 Business knowledge for efficient business management 2 New market understanding and penetration No Significant Change 3 Knowledge related to international trade transaction 4 Business partner s risk information and risk protection tools 6 Lower trust among business partners in terms of payment method / term 5 Sufficient funds for investment and working capital 7 More credit needed while more stringent in credit approval from bank 8 Low bargaining power and Lack of guarantee support from intermediary

27 Solutions and Recommendations: Business As Usual 1 Business knowledge for efficient business management Established K-SME Care Knowledge Center Provide knowledge via seminar and Business workshop New market understanding and penetration Knowledge related to international trade transaction Business partner s risk information and risk protection tools Sufficient funds for investment and working capital Knowledge seminars of doing international trade in specific countries Sponsoring overseas field trip for international opportunity Professional advice of trade transactions by Trade Fin. Specialist and E-Learning Academic seminar focusing on economic situation Business rating / credit checking service Guarantee products: L/C, DLC, Standby LC and Trade Insurance Advising on financial related for proper business planning Providing source of fund: Long term loan, Working capital and Factoring Data Source: * Trade Finance Customer Research, Aug 2008 April 2009, 780 SME samples

28 Solutions and Recommendations: Business As Usual C - Capital A - Advice R - Research E - Education

29 Solutions and Recommendations: Business As Usual International Trade Information Seminar by KASIKORNBANK Training Topics 1. Inter-Trade for beginner 2. Inter-Trade : Japan 3. Inter-Trade : China 4. Inter-Trade : Korea 5. Inter-Trade: Middle East Sponsoring Thai SMEs for field trip visiting to Taiwan and meeting Taiwanese SMEs for more business opportunities.

30 Solutions and Recommendations: Recession Economy 6 Lower trust among business partners in terms of payment method / term Extend financing term for the exporter / importer who can support the trusted underlying 7 More credit needed while more stringent in credit approval from bank Invoice financing to discount for Importer (set limit to domestic buyers) Cooperate with domestic factoring to finance Importer 8 Low bargaining power and Lack of guarantee support from intermediary Increase temporary limit for importer who can provide provable domestic order Data Source: * Trade Finance Customer Survey Research, Aug 2008 April 2009, 780 SME samples

31 Agenda Thai SMEs Overview Thai SMEs under Global Economic Crisis 3 key players to support SMEs Bank State Agency International Intermediary Further Consideration

32 Three Key Players to Support SMEs Bank State Agency Mitigate Impacts from Global Economic Crisis International Intermediary Measure and Policy: Introduce measures to help SMEs and international trading sector i.e. provide export guarantee, credit subsidy program and extra sources of fund

33 State Agency: Measures to support SMEs Thailand Extension of tax deductible to support SMEs and micro businesses Knowledge seminar to develop efficiency for SME s business Investment Information, Trade law and regulation information via Trade Embassy website Road Show for exporters by Chamber of Commerce Coordinating with banks to provide guarantee products and fund facilitations China Plan to establish national and provincial credit guarantee institution in 2009 to help SMEs get bank loans. Beijing SMEs Credit Re-guarantee Corporation (BCRG) was set up. Plan to give tax cut or exemption to qualified guarantee agencies and assist local governments in investing in guarantee agencies. Bangladesh SME Foundation under the Industry ministry was introduced ADB is helping financial institutions by providing refinance through Bangladesh Bank, which helps banks to minimize their cost of fund

34 Agenda Thai SMEs Overview Thai SMEs under Global Economic Crisis 3 key players to support SMEs Bank State Agency International Intermediary Further Consideration

35 Three Key Players to Support SMEs Bank State Agency Mitigate Impacts from Global Economic Crisis International Intermediary Measure and Policy: Encourage governments and relevant parties to facilitate cross boarder financial flow and international trading

36 International Intermediary: Measures to support SMEs Global plan for recovery by G20 Meeting on 2 April 2009 to stimulate international trade and stabilize global financial sector Make at least USD250 billion available in the next 2 years to support the finance of trade through export credit and investment agencies (of G-20) and the Multilateral Development Banks (MDBs) such as the World Bank Triple the money IMF can lend to rescue crisis-stricken nations, to USD750 billion Make use of available flexibility in capital requirements for trade finance by regulator Stricter limits on hedge funds, credit-rating firms and risk-taking by banks International Labor Organization (ILO) launched a Small Enterprise Development Program to assist SMEs Provide policy advice and support SMEs in clusters and value chains Maximize SMEs involvement in public procurement programs Assist governments in reviewing and improving the regulatory environment for SMEs

37 Agenda Thai SMEs Overview Thai SMEs under Global Economic Crisis 3 key players to support SMEs Bank State Agency International Intermediary Further Consideration

38 Points for Further Consideration Governments to improve trade credit facilitating infrastructure via Setting up international intermediary and/or extend roles of existing ones for SMEs Thailand Export Credit Agency (ECA) e.g. Coface, MITI, Euler, Country A State Agency Financial Institution 2 Financial Institution SME Bank EXIM Bank Bank Insurance SMEs 1 SMEs Bank Insurance State Agency 1. Cash crisis becomes likely due to low demand, loss of trust btw trade partners and among financial institutions. 2. Loss of trust among international Financial Institutions. Guarantee agencies are in need leading to high financial transaction cost. 3. Existing ECA products are not made available to SMEs.

39 Points for Further Consideration Specific agency and fund for SMEs should be established The specific agency for SME finance and trade facilitation may be established to act as international intermediary among the International Financial Institutions (IFIs), the Multilateral Development Banks (MDBs) and export credit agencies (ECAs) Under ASEAN plus 3 and plus 6 schemes, the group may consider the formation of regional SME fund to function in SME s sustainable development More closer cooperation and assistance will be expected from IFIs and MDBs and ECAs in developed countries to the export credit organizations in developing countries in order to promote effective credit guarantee mechanisms.

40 Appendix

41 The Asian Banker Award Excellence in SME Banking By The Asian Banker 2006 and 2007

42 Thailand SMEs Market KBank is number 1 in Thailand SMEs market with 25% market share Thai SME Market Share 2008 Others, 21% KBank, 25% TMB, 7% BBL, 24% KTB, 9% SCB, 14% Financial Product & Service Product Program E-learning Program International Trade Seminar Credit Information Rating Service Non-Financial Supports (K-SME Care Project) Knowledge Center Business Seminar / Workshop Business Competitiveness Diagnosis Business Research & Articles

43

44 Country Level: Measures to support SMEs Vietnam Reduce corporate income tax for SMEs by 30% from 4Q08 and 2009 Thailand Extension of tax deductible to support SMEs and micro businesses Introduction of new facility of the EXIM Thailand, to cover export credit insurance products, aimed at raising Thai SMEs confidence in starting or expanding export EXIM Thailand has cooperated with SME BANK and SBCG (Small Business Credit Guarantee Corp) to provide liquidity and help mitigate risks in international trade United Kingdom The Enterprise Finance Guarantee Scheme (EFG) announced by the Government to support loans to companies with a turnover of up to 25 Mil. Pound EFG is aimed at viable, credit-worthy firms that are struggling to access the finance for working capital or investment

45 Trade Finance Customer Understanding Research Objective Phase I To understand customer s need in terms of trade finance products and services provided by bank To understand the overview of customer s trade finance products usage Phase II To understand business operation of customers who have trade finance transaction To find out concerns and problems that customer are currently facing in their trade operations Type of Interview Telephone interview (Quantitative) In-depth interview (Qualitative) Conducting Period August 2008 December April 2009 Sample Size 743 SME enterprises (572 for Medium-sized enterprises and 173 for Small-sized enterprises) 36 Medium-sized enterprises

46 SME Snapshot by Location SMEs Operators = 401,349 Proportion = 16.90% SMEs Operators = 648,467 Proportion = 27.30% SMEs Operators = 94,847 Proportion = 3.99% SMEs Operators = 108,638 Proportion = 4.57% SMEs Operators = 227,814 Proportion = 9.59% SMEs Operators = 158,972 Proportion = 6.69% SMEs Operators = 730,366 Proportion = 30.75% Total SME operators in 2007 are 2,375,368 (nationwide) highly concentrated in BKK & Suburb (31%) Data Source: White paper 2007 from OSMEP. Juristic & Non-Juristic person as of December 2007

47 SME Snapshot: Outlook for 2009 In 2009, contribution of SMEs is positively forecasted to be 39.1% of Thailand s GDP No. of SMEs and Employment No. of SMEs (Million) Employment (Million persons) OSMEP predicts the 300,000 persons of job losses in 2009, about 3% of total SME employment. SME GDP is projected to be at -2.0% compared to national GDP at -6.0% to -3.5%, with output value of around USD 97.8 bn While manufacturing sector is expected to shrink around 7%, Non-manufacturing, especially trade sector is projected to record positive growth. Data Source: White paper 2007 from OSMEP (Office of Small and Medium Enterprises Promotion)

48 Solutions and Recommendations: Business As Usual Business Seminar / Workshop by KASIKORNBANK Branding Academy Workshop for SMEs

49 Solutions and Recommendations: Business As Usual Trade Finance e-learning by KASIKORNBANK E-learning is created for all SMEs which available on bank website.

50 Solutions and Recommendations: Business As Usual Academic Seminar by KASIKORNBANK K-International Trade Solutions by KASIKORNBANK Improving of Business Management for Global Market seminar held to support SMEs development Providing advice for import-export issues by Trade Service Specialist

51 Solutions and Recommendations: Business As Usual Product Program: K-Trade Plus Product Program: K-Privileged Trade Solutions

52