Improving Trade Finance Environment for SMEs

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

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




• Bank

• State Agency



Key Concerns from Global Economic Crisis

Macro Level

Micro Level

Export

Dependency

Commodity Price

Declines

Loss from

Carrying Inventory

Liquidity

Shortage


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


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


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


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




• Bank

• State Agency



Three Key Players to Support SMEs

Different Role and Action needed

Mitigate Impacts

from Global

Economic Crisis

Bank

International

Intermediary

State

Agency

Agenda




• Bank

• State Agency



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


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


C - Capital

A - Advice

R - Research

E - Education

International Trade Information Seminar

by KASIKORNBANK

Sponsoring Thai SMEs for field trip

visiting to Taiwan and meeting Taiwanese

SMEs for more business opportunities.


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




• Bank

• State Agency



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


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




• Bank

• State Agency



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


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




• Bank

• State Agency



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.

Appendix

The Asian Banker Award

Excellence in SME Banking

By The Asian Banker 2006 and 2007

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%


Proportion = 16.90%


Proportion = 3.99%


Proportion = 6.69%SMEs Operators = 108,638

Proportion = 4.57%


Proportion = 9.59%


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


Trade Finance e-learning

by KASIKORNBANK

E-learning is created for all SMEs

which available on bank website.


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”

Product Program: K-Trade Plus


Product Program:

K-Privileged Trade Solutions

Improving Trade Finance Environment for SMEs

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