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KASIKORNBANK PLC.
17 May 2009
Improving Trade Finance Environment for SMEs
Situation, Solution and Recommendation
Agenda
• Thai SMEs Overview
• Thai SMEs under Global Economic Crisis
• 3 key players to support SMEs
• Bank
• State Agency
• International Intermediary
• Further Consideration
Agenda
• Thai SMEs Overview
• Thai SMEs under Global Economic Crisis
• 3 key players to support SMEs
• Bank
• State Agency
• International Intermediary
• Further Consideration
Thailand‟s Macroeconomic SnapshotImpact from Global Economic Crisis and Political Uncertainties
2007 2008 2009F
GDP Growth 4.9 2.6 -6.0 to -3.5
AVG. Brent Crude (USD/barrel) 72.5 97.1 40.0 – 50.0
Private Consumption 1.6 2.5 -3.2 to -1.1
Investment 1.3 1.1 -7.8 to -6.1
Gov. Budget (% of GDP) -1.5 -0.9 -4.7 to -4.5
Export Growth 17.3 16.8 -20.0 to -16.5
Import Growth 9.1 26.4 -23.0 to -19.0
Trade Balance (USD bn) 11.6 0.2 4.6 – 5.4
Current Account (USD bn) 14.0 -0.2 2.8 – 5.0
Headline CPI 2.3 5.5 0.0 – 0.5
Core CPI 1.1 2.4 0.5 – 1.0
AVG. Unemployment (Thousands) 501.0 514.0 1,500 – 1,700
Unemployment Rate (% of Labor Force) 1.4 1.4 4.0 – 4.5
Note: Information as of Apr 16, 2009
SME Definition in Thailand
2 groups of SMEs market: Micro & Small Business and Medium Business
Remark: SMEs Definition from OSMEP (Office of Small and Medium Enterprises Promotion)
Manufacturing >50 - 200 >1.45 - 5.80M
Trading - Retailing >25 - 50 >1.45 - 2.90M
Trading - Wholesaling >15 - 30 >0.87 - 1.74M
Service >50 - 200 >1.45 - 5.80M
# of
Employee
Fixed
Assets
(USD)
Manufacturing <= 50 <= 1.45M
Trading - Retailing <= 25 <= 1.45M
Trading - Wholesaling <= 15 <= 0.87M
Service <= 50 <= 1.45M
# of
Employee
Fixed
Assets
(USD)Micro & Small Medium
Farm
sector,
11.6%
SMEs,
37.8%
Others,
4.3%
LE, 46.3%
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
Data Source: White paper 2007 from OSMEP (Office of Small and Medium Enterprises Promotion)
National GDP Structure 2008
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 2002-2009
Thai Economy and International TradeThai economy is heavily trade-dependent (SME & LE)
Trade Dependency (% of GDP)
Exports Imports Total Trade
2004 59.7 58.5 118.2
2005 62.6 67.0 129.6
2006 63.0 63.0 126.0
2007 62.4 57.3 119.8
2008 64.3 65.3 129.6
• Total Trade as a percentage of GDP has continually risen to 129.6% in 2008.
• 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
-5
0
5
10
15
20
25
30
2004 2005 2006 2007 2008
GDP Export Import Total Trade
%Growth Rate
16.0%
2.6%
Contribution of SMEs in International Trade
Data Source: White paper 2007 and Survey Report; MOC „s Trade Statistics. F: * OSMEP, as of Mar 2009; ** KResearch Forecasts
• 30% of international trade value has
been generated by SMEs, 88.1 bn USD
in 2007
Trade Growth 2006 2007 2008 2009F
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%**
• SME export growth had
increased steadily during
2006 to 2007
• SME import growth cooled
substantially, in line with
national imports value
Almost 30% of national trade value has been generated by SMEs
2007 (Billion)
USD %
SME Exports 45.9 15.6
SME Imports 42.2 14.4
SME Trade Volume 88.1 30.0
National Exports 152.5 51.9
National Imports 141.3 48.1
National Trade Volume 293.8 100.0
Agenda
• Thai SMEs Overview
• Thai SMEs under Global Economic Crisis
• 3 key players to support SMEs
• Bank
• State Agency
• International Intermediary
• Further Consideration
Key Concerns from Global Economic Crisis
Macro Level
Micro Level
Export
Dependency
Commodity Price
Declines
Loss from
Carrying Inventory
Liquidity
Shortage
Key Concerns from Global Economic Crisis
Macro Level
Micro Level
Export DependencyCommodity Price
Declines
Loss from
Carrying Inventory
Liquidity
Shortage
4% 7% 3% 4% 4% 4%
25%
5% 6%18%
43%27% 34%
22%
5% 9%
6%
13%3%
6%
22%37% 24%
26%
41% 28%
27%
20%27%
20%
31% 30%39%
48% 50%59%
42%
62% 64%56%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Textile
Gem
s and
Jew
elry
Indu
stria
l Agr
icul
ture
Furnitu
re &
Woo
d
Pul
p & P
aper /
Prin
ting
Oth
ers
Ele
ctro
nic
and
APP
.
Pla
stic
Aut
omotiv
e an
d Parts
Har
dware
Domestic (REAL) Indirect Export Export Import
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
*Definition of Export Dependable: Having high export portion compared to total sales revenue ** SME/ LE
• Textile
• Gems & Jewelry
• Agro-Industry
Most Affected Industries
Key Concerns from Global Economic Crisis
Macro Level
Micro Level
Export DependencyCommodity Price
Declines
Loss from
Carrying Inventory
Liquidity
Shortage
Commodity Price Declines
Zinc and Gold Prices
Livestock Price
Steel PriceKey commodity prices have plunged dramatically
due to lower demand as a result of global
economic crisis
Q1 2008 Q3 2008
Rice 1,080 USD 660-500 USD
Tapioca 2.50 THB / Kg. 1.45 THB / Kg.
Smoked Sheet Rubber 90 THB / Kg. 55-58 THB / Kg.
Palm 6.0 THB / Kg. 2.8 THB / Kg.
Palm Oil 36 THB / Liter 17 THB / Liter
Corn 10-12 THB / Kg. 4.8-5.0 THB / Kg.
Agriculture Prices Fell More Than 21%
This will likely affect farm incomes and
profitability of the related industries.
Remark: FX 1 USD = 31.5 THB
Key Concerns from Global Economic Crisis
Macro Level
Micro Level
Export
DependencyCommodity Price
Declines
Loss from
Carrying Inventory
Liquidity
Shortage
Loss from Carrying Inventory
Change in Inventory Index (Q-o-Q)
-50%
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
60%
Q1/50 Q2/50 Q3/50 Q4/50 Q1/51 Q2/51 Q3/51
อาหารและเครือ่งดืม่ กระดาษและผลติภัณฑก์ระดาษผลติภัณฑย์างและพลาสตกิ ผลติภัณฑจ์ากแร่อโลหะผลติโลหะขัน้มูลฐาน ผลติภัณฑท์ีท่ าจากโลหะประดษิฐ ์เครือ่งอุปกรณ์และการขนสง่อืน่ๆ
Food & Beverage
Rubber Products & Plastic
Metal Products
Transportation Equipments
Pulp and Paper
Non-Metal Products
Artificial Metal Products
High risk for industries which have high percentage of inventory / sales
Volatility of commodity prices will increase risk
of loss from carrying inventory and difficulties
in production and stock management
Most Affected Industries
• Real Estate
• Textile
• Gems and Jewelry
• Hardware
• Construction Materials
• Industrial Agriculture
• Food & Beverage
• Pulp & Paper / Printing
* SME/ LE
Key Concerns from Global Economic Crisis
Macro Level
Micro Level
Export Dependency Commodity Price
Declines
Loss from
Carrying Inventory
Liquidity
Shortage
Liquidity Shortage Problem
High D/E ratio but low current ratio industries would be affected
Most affected industries from Liquidity Shortage
DE ratio Current ratio Impact
Communication 1.91 0.88 High
Real Estate 1.38 1.05 High
Industrial Agriculture 1.29 0.98 High
Commerce 1.27 0.99 High
Agriculture 1.21 0.83 High
Furniture & Wood 1.16 0.94 High
Financial Institute 1.15 0.84 High
Automotive and Parts 1.16 1.20 Moderate
Hotels and Restaurants 1.12 0.52 Moderate
Plastic 1.11 0.97 Moderate
Transportation 1.10 0.73 Moderate
Hardware 1.09 1.19 Moderate
Textile 1.01 1.04 Moderate
SME BoL & KBank
Impact of Global Economic Crisis on Export IndustriesIndustrial Agriculture, Gems & Jewelry and Textile are highly affected
Industrial Agriculture
Furniture & Wood
Textile
Electronics & Appliances
Gems & Jewelry
0%
20%
40%
60%
80%
100%
120%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Export Dependable
3 Impacts
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
Decreased sale
volume
Lower profitability • High carry-cost
• Value depreciation
More sufficient support
needed
Export
Dependency
Loss from
Carrying Inventory
Commodity Price
Declining
Liquidity
Shortage
Export Dependency
Agenda
• Thai SMEs Overview
• Thai SMEs under Global Economic Crisis
• 3 key players to support SMEs
• Bank
• State Agency
• International Intermediary
• Further Consideration
Three Key Players to Support SMEs
Different Role and Action needed
Mitigate Impacts
from Global
Economic Crisis
Bank
International
Intermediary
State
Agency
Agenda
• Thai SMEs Overview
• Thai SMEs under Global Economic Crisis
• 3 key players to support SMEs
• Bank
• State Agency
• International Intermediary
• Further Consideration
Local banks play significant role to facilitate SMEs needs
Mitigate Impacts
from Global
Economic Crisis
Bank
International
Intermediary
State
Agency
Supporting Solution and Initiative
• Business As Usual
• Recession Economy
Three Key Players to Support SMEs
Customer Needs and Concerns: Business As Usual
Data Source: * Trade Finance Customer Research, Aug 2008 – April 2009, 780 SME samples
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
Top 5 concerns of SMEs based on customer research
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
Method of Payment
Importer Exporter
Large
EnterpriseSMEs
Large
EnterpriseSMEs
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
Summary of Customer Needs and Concerns
Business As Usual Period * Recession Economy Period
1Business knowledge for efficient
business management
2New market understanding and
penetration
3Knowledge related to international trade
transaction
4Business partner‟s risk information and
risk protection tools
5Sufficient funds for investment and
working capital
6Lower trust among business partners in
terms of payment method / term
7More credit needed while more stringent
in credit approval from bank
8Low bargaining power and Lack of
guarantee support from intermediary
No Significant Change
Solutions and Recommendations: Business As Usual
Data Source: * Trade Finance Customer Research, Aug 2008 – April 2009, 780 SME samples
1Business knowledge for efficient
business management
• Established K-SME Care Knowledge Center
• Provide knowledge via seminar and Business workshop
2New market understanding and
penetration
• Knowledge seminars of doing international trade in
specific countries
• Sponsoring overseas field trip for international opportunity
3Knowledge related to international
trade transaction
• Professional advice of trade transactions by Trade Fin.
Specialist and E-Learning
• Academic seminar focusing on economic situation
4Business partner‟s risk information
and risk protection tools
• Business rating / credit checking service
• Guarantee products: L/C, DLC, Standby LC and Trade
Insurance
5Sufficient funds for investment and
working capital
• Advising on financial related for proper business planning
• Providing source of fund: Long term loan, Working capital
and Factoring
International Trade Information Seminar
by KASIKORNBANK
Sponsoring Thai SMEs for field trip
visiting to Taiwan and meeting Taiwanese
SMEs for more business opportunities.
Solutions and Recommendations: Business As Usual
Training Topics
1. Inter-Trade for beginner
2. Inter-Trade : Japan
3. Inter-Trade : China
4. Inter-Trade : Korea
5. Inter-Trade: Middle East
Solutions and Recommendations: Recession Economy
Data Source: * Trade Finance Customer Survey Research, Aug 2008 – April 2009, 780 SME samples
6Lower trust among business
partners in terms of payment
method / term
7More credit needed while more
stringent in credit approval
from bank
8Low bargaining power and Lack
of guarantee support from
intermediary
• Extend financing term for the exporter / importer who
can support the trusted underlying
• Invoice financing to discount for Importer (set limit to
domestic buyers)
• Cooperate with domestic factoring to finance
Importer
• Increase temporary limit for importer who can
provide provable domestic order
Agenda
• Thai SMEs Overview
• Thai SMEs under Global Economic Crisis
• 3 key players to support SMEs
• Bank
• State Agency
• International Intermediary
• Further Consideration
Mitigate Impacts
from Global
Economic Crisis
Bank
International
Intermediary
State
Agency
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
Three Key Players to Support SMEs
State Agency: Measures to support SMEs
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
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
Agenda
• Thai SMEs Overview
• Thai SMEs under Global Economic Crisis
• 3 key players to support SMEs
• Bank
• State Agency
• International Intermediary
• Further Consideration
Measure and Policy:
Encourage governments and relevant
parties to facilitate cross boarder
financial flow and international trading
Mitigate Impacts
from Global
Economic Crisis
Bank
State
Agency
International
Intermediary
Three Key Players to Support SMEs
International Intermediary: Measures to support SMEs
• 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
“Global plan for recovery” by G20 Meeting on 2 April 2009
to stimulate international trade and stabilize global financial sector
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
Agenda
• Thai SMEs Overview
• Thai SMEs under Global Economic Crisis
• 3 key players to support SMEs
• Bank
• State Agency
• International Intermediary
• Further Consideration
Insurance
SME Bank
EXIM Bank
Financial
Institution
Insurance
State
Agency
Financial
Institution
Export Credit Agency (ECA)
e.g. Coface, MITI, Euler,
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.
SMEs SMEs
1
State
Agency
BankBank
2
Governments to improve trade credit facilitating infrastructure via
Setting up international intermediary and/or extend roles of existing ones for
SMEs
Thailand Country A
Points for Further Consideration
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.
Thailand SMEs Market
Thai SME Market Share 2008
KBank is number 1 in Thailand SMEs market with 25% market share
Others,
21%
TMB, 7%
KBank,
25%
BBL, 24%
SCB, 14%
KTB, 9%
Financial Product & Service
Non-Financial Supports
(K-SME Care Project)
Product Program
E-learning Program
International Trade Seminar
Credit Information Rating Service
Knowledge Center
Business Seminar / Workshop
Business Competitiveness Diagnosis
Business Research & Articles
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
Phase I Phase II
Objective 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
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 2008 - April 2009
Sample Size 743 SME enterprises
(572 for Medium-sized enterprises and
173 for Small-sized enterprises)
36 Medium-sized enterprises
Trade Finance Customer Understanding Research
SME Snapshot by Location
Data Source: White paper 2007 from OSMEP. Juristic & Non-Juristic person as of December 2007
SMEs Operators = 648,467
Proportion = 27.30%
SMEs Operators = 401,349
Proportion = 16.90%
SMEs Operators = 94,847
Proportion = 3.99%
SMEs Operators = 158,972
Proportion = 6.69%SMEs Operators = 108,638
Proportion = 4.57%
SMEs Operators = 227,814
Proportion = 9.59%
SMEs Operators = 730,366
Proportion = 30.75%
• Total SME operators in 2007
are 2,375,368 (nationwide)
• highly concentrated in BKK &
Suburb (31%)
SME Snapshot: Outlook for 2009
Data Source: White paper 2007 from OSMEP (Office of Small and Medium Enterprises Promotion)
In 2009, contribution of SMEs is positively forecasted to be 39.1% of Thailand‟s GDP
2.20 2.24 2.29 2.37 2.4 2.4
8.4 8.5 8.6 8.9 9.2 9.0
0.0
2.0
4.0
6.0
8.0
10.0
00 00 00 00 00 00
No. of SMEs (Million) Employment (Million persons)
No. of SMEs and Employment
• 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.
Business Seminar / Workshop by KASIKORNBANK
“Branding Academy” Workshop for SMEs
Solutions and Recommendations: Business As Usual
Trade Finance e-learning
by KASIKORNBANK
E-learning is created for all SMEs
which available on bank website.
Solutions and Recommendations: Business As Usual
Academic Seminar
by KASIKORNBANK
Solutions and Recommendations: Business As Usual
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”
Product Program: K-Trade Plus
Solutions and Recommendations: Business As Usual
Product Program:
K-Privileged Trade Solutions