The Bank of Thailand is concerned about the weaker competitiveness of local small businesses amid an influx of cheap Chinese imports.
Low-priced Chinese consumer goods have inundated the Thai market, hurting the competitiveness of small and medium-sized enterprises (SMEs).
Manufacturing for the domestic market is struggling to compete with imported goods, said the central bank's assistant governor for the monetary policy group, Piti Disyatat.
According to central bank data, imported consumer goods accounted for 24% of total imported products in the first quarter of 2023, of which 9.1% came from China.
Moreover, the proportion of imported Chinese consumer goods has continued to increase significantly over the past few years.
The Bank of Thailand's Monetary Policy Committee (MPC) meeting on Wednesday discussed the country's weaker competitiveness as a result of structural challenges, which affects Thailand's growth potential in the longer term.
The economy has faced structural headwinds for a long time, including in the manufacturing and SME sectors.
For the manufacturing sector, the country's inventories have declined for eight consecutive quarters.
The fragile SME segment continues to recover slowly from the pandemic.
The committee recognised the importance of managing the credit quality of SMEs, said Mr Piti, who is also the MPC's secretary.
Despite an easing of the debt-to-GDP ratio for both business and household segments, the ratio remains at a high level, he said.
The debt-to-GDP ratio of households and businesses rose to 90.9% and 84.7%, respectively, at the end of the third quarter of 2023.
It will likely take more time to reduce the financial imbalance, said Mr Piti.
Though the Thai financial market has offered a low interest rate for more than a decade, the profitability of local companies has declined.
The central bank cut the policy rate from 3.25% in 2011 to 0.5% in 2020, but the proportion of low-profit firms rose from 4% in 2011 to 7% in 2022, according to central bank data.
"The low interest rate over the past 10 years has led to financial fragility for the business sector, partly because of inappropriate capital management and the search for yield," he said.
The central bank raised the policy rate from 0.5% in August 2022 to 2.5% at present.
Small businesses in certain industries may face tighter credit conditions and more stringent credit standards.
However, many businesses can service their debts and access new funding normally, said Mr Piti.
He said despite a slight decline in total outstanding loans, largely attributed to debt repayment, new loan growth is lower than during the pre-pandemic period.
The central bank has implemented long-term debt restructuring and targeted measures under a responsible lending approach to help vulnerable borrowers, including both SMEs and individuals, to sustainably address debt problems.