Kasikornbank, the market leader in SME lending, believes the impact of the rise in the daily minimum wage to Bt300 is more serious than either the strength of the baht or the severe flooding of late 2011 for small and medium-sized enterprises, as they will take longer to adjust to the increased cost.
After the floods, affected SMEs were generally able to resume their businesses quickly, while the strong baht is only negatively affecting SME exporters. The minimum-wage increase, however, will continue to impinge on business operations, KBank executive vice president Patchara Samalapa said yesterday.
He said the bank expected SMEs to take at least two or three years to adjust fully to the nationwide wage increase, and that some non-performing loans (NPLs) from these customers could be seen in 2014. SMEs in at least four industries - agriculture, wooden furniture, textiles and plastic - are particularly badly affected by the higher minimum, he said.
According to the bank's study, the minimum-wage increase has driven up the labour costs of SMEs to between 74.4 per cent and 80.7 per cent of their operating costs, which represents an average rise of 12 per cent.
SMEs in Roi Et province have witnessed the highest effect, with operating costs increasing by 13 per cent, while those in Phuket province have suffered the lowest effect at 5.8 per cent.
KBank will offer special financial help to SME customers badly affected by the wage increase to adjust to the new situation.
The programme consists of a six-month grace period, a credit line of Bt10 million for SMEs that require more working capital, and a credit line for supporting SMEs that want to buy machinery in the face of rising manpower costs.
Patchara said the challenge for small businesses was how to increase the productivity of employees in the face of the increased minimum wage, without thinking solely about cost reductions.
Relocation to neighbouring countries might not help offset labour costs much, because worker productivity in those countries is lower than in Thailand, he added.
Despite SMEs facing a number of challenges, the bank targets outstanding lending in that segment of about Bt528 billion by year-end, representing an increase of 12.8 per cent from Bt468.3 billion in 2012, said the executive.
The large size of the portfolio is expected to lead to a relatively large rate NPLs, which the bank can accept at 2.95 per cent of outstanding SME lending. At the end of last year, NPLs in that portfolio stood at 3.2 per cent, Patchara said.
Loan growth this year is mainly driven by small enterprises with annual sales of no more than Bt50 million, and by SMEs in 31 provinces.
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Article source: http://www.thethailandlinks.com/2013/01/30/wage-hike-hit-hardest/
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