Thailand approves $2.8 billion soft loan scheme for commercial banks

BANGKOK (Reuters) - Thailand's cabinet on Tuesday approved a 100 billion-baht ($2.8 billion) soft loan scheme where funds would be lent to commercial banks so they could on-lend to borrowers at below-market rates, a deputy finance minister said.

The programme is aimed at helping smaller businesses obtain loans, Paopoom Rojanasakul told reporters after a cabinet meeting.

The state-owned Government Savings Bank will offer liquidity to commercial banks through loans at an interest rate of 0.01% so they can lend to small businesses at a rate of no more than 3.5% per year, he said.

Retail lending rates among Thai banks are currently more than 7%.

The programme will be offered for a period of two years to smaller firms that can apply for loans until the end of 2025, the government said in a statement.

"This will inject capital into the system," said Paopoom, adding the measures drew from the state bank's bottom line and not the budget.

The government has said the scheme is a response to tightened lending by banks amid a slow economic recovery and rising bad debt.

Prime Minister Srettha Thavisin has promised additional measures next week, including support for high electricity prices, as he looks to spark growth in Southeast Asia's second-largest economy.

In April, Thai banks said they would cut lending rates by 25 basis points for vulnerable groups for a period of six months, in response to a request from the prime minister.

Srettha has repeatedly pressed the central bank to cut rates to help the economy. Despite the pressure, the central bank held its key interest rate steady at 2.50% for a fourth straight meeting last month.

The central bank expects the economy to grow 2.6% this year, after growth of 1.9% last year which lagged regional peers.

($1 = 36.22 baht)

(Reporting by Orathai Sriring, Kitiphong Thaichareon; Writing by Chayut Setboonsarng; Editing by John Mair)