MPC warns of financial risks among SMEs, households

MPC warns of financial risks among SMEs, households

Economic drags on loans and payments

Gradual and uneven economic recovery could affect financial stability among businesses and households in the period ahead, says the edited minutes of the Bank of Thailand's Monetary Policy Committee (MPC).

Financial positions of business have become more fragile, particularly for tourism-related businesses as economic activities remain much lower than the pre-pandemic level, according to the latest edited minutes issued yesterday.

Small and medium-sized enterprises (SMEs) have limited access to credit due to higher credit risks, said the edited minutes.

Supant Mongkolsuthree, chairman of the Federation of Thai Industries, said earlier that some commercial banks hardly issued loans despite the state lending guarantee as SMEs usually spend 3-5 years recovering, which is considered too long from banks' perspective.

Households remain vulnerable given the high household debt and a slow recovery in income, which deteriorates their debt servicing capability, said the edited minutes.

The ratio of household debt to GDP in the second quarter ballooned to 84%, an 18-year high, representing a value of 13.6 trillion baht. The ratio was an increase from 13.5 trillion baht or 80% of GDP registered in the first quarter.

The rising household debt-to-GDP ratio and the slow recovery in income will delay the deleveraging process, which together could potentially have an adverse impact on consumption and economic growth in the medium term, said the edited minutes.

"Debt restructuring and economic restructuring should therefore be accelerated to support the recovery in incomes in the post-Covid-19 environment. Furthermore, an uneven recovery in income among [different] sectors would result in worsening inequality problems and would limit sustainable economic growth in the long term," said the edited minutes.

"Nevertheless, credit assistance measures partially relieved liquidity constraints of businesses and households affected by the pandemic."

Downside risks for Thailand's economic recovery are still at large going forward and could arise from domestic political uncertainties, which could affect consumer and investor confidence, said the edited minutes.

Apart from domestic politics, other risks affecting the recovery momentum include the progress of protocol to admit foreign tourists, which would likely be gradual depending on the outbreak scenarios in foreign countries, along with the progress of the Covid-19 vaccine development and heightened financial vulnerabilities for households and businesses following the phasing out of aid measures, said the edited minutes.

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