Thai small and medium-sized enterprises (SMEs) remain trapped in a cycle of rising costs, declining revenues and weakening consumer purchasing power.
Access to formal credit has decreased because of stricter regulations from financial institutions, leading to a greater reliance on informal loans.
According to Sangchai Theerakulvanich, president of the Federation of Thai SMEs, small Thai companies were overwhelmed by the impact of the pandemic and now face additional challenges from the Russia-Ukraine war and the Israel-Hamas-Iran conflict, which have driven up energy prices and raw material costs.
Although these pressures have not yet caused SMEs to collapse, Mr Sangchai said they are in a state of depression, reflected by the rising levels of non-performing loans (NPLs), particularly for personal loans, credit cards, and home and car loans.
"Members of the Federation of Thai SMEs nationwide are struggling with the stringent credit approval processes of financial institutions, which are increasingly cautious in lending to SMEs. To secure loans from financial institutions, SME clients must have three years of verifiable financial performance records," he said.
"This has led to a higher reliance on informal loans."
Mr Sangchai cited the latest survey conducted by the Office of Small and Medium Enterprises Promotion that found in the first quarter this year, 53% of SMEs surveyed used formal credit, 11% used a hybrid of formal and informal credit, and 36% relied on informal loans.
In the second quarter, the use of formal credit fell to 40%, while hybrid usage rose to 21%, and the use of informal loans increased to 39%.
He referred to the soft loan programme of the Government Savings Bank, providing loans to participating commercial banks at an interest rate of 0.01% for SME lending, with an interest rate ceiling of 3.5% for the first two years.
However, commercial banks primarily lent to their existing clients and maintained strict lending criteria for other SMEs, likely because of concerns over the financial discipline of SMEs, said Mr Sangchai.
Therefore, he recommends a commercial credit card system utilising a digital platform connected to SME suppliers, allowing financial institutions to closely monitor the spending of SMEs and better assess associated risks.
Regarding resolving bad debt for SMEs, Mr Sangchai said no specific agency is clearly responsible, with cases often referred to the Interior Ministry's Damrongtham Centre, then passed on to other relevant agencies.
He proposed the government establish a dedicated agency or mechanism with legal authority to act as a one-stop service for SME development in various areas.
Mr Sangchai also said the Bank of Thailand should reduce the policy interest rate to help lower costs for SMEs.
Roughly 41% of SMEs face average interest rates of 9-12%, with around 20% paying rates of 13-20%, and only 12% benefiting from rates as low as 1-5%, he said.
Regarding the threat posed by Chinese capital entering the Thai market, Mr Sangchai said while Thai businesses do not oppose capitalism, they advocate for a form that is non-destructive to Thai businesses.
GETTING WORSE
Phichit Mitrawong, managing director of the Small and Medium Enterprise Development Bank of Thailand (SME D Bank), said the situation for SMEs following the pandemic has not improved, and may have deteriorated.
"During the pandemic, the government was supporting SMEs, similar to patients receiving medication to alleviate their illness," said Mr Phichit.
"But now, without medication, we see the fragility of SMEs. Even a gentle breeze can knock these businesses down."
He said the latest tally of NPLs at SME D Bank totalled 13% of outstanding loans, compared with 8% at the end of last year.
Most of these NPLs are related to retail businesses, which have posted poor sales. This led to numerous small stores in malls near Victory Monument closing down, said Mr Phichit.
He said the bank should allow customers to make payments according to their ability. In the past, SMEs had to pay both the principal and interest, but now they should be allowed to pay only the interest, said Mr Phichit.
SME D Bank also gradually reduced the required interest payments from 80% of the newly accrued interest down to 60%, 50% and finally 20%.
"If the bank's clients collapse, all deferred interest has to be reversed. We must fully provision that debt amount, leading to a loss of income and reduced profits. If customers fail, we also suffer," he said.
"If it becomes necessary to enforce the law and seize assets for debt repayment, selling a debt valued at 10 baht might only recover 4-5 baht. This is because it is an unsecured debt, only guaranteed by the Thai Credit Guarantee Corporation, which covers damages up to 30%.
"We have to monitor vulnerable customers and act as mentors to keep them under supervision."
According to Mr Phichit, in the first seven months of this year, SME D Bank extended 30 billion baht in loans to SMEs, with the annual target set at 70 billion.
For the remainder of this year, finding quality customers similar to those at commercial banks would be difficult, as most applicants are from vulnerable groups, he said.
SME D Bank has nearly 80,000 lending customers, while a survey by the University of the Thai Chamber of Commerce estimates there are 3.2 million SMEs in Thailand.
Mr Phichit said the figure of 3.2 million SMEs might include micro-entrepreneurs such as street vendors and small shopkeepers.
According to Commerce Ministry registration data, there are 400,000 registered businesses nationwide, with 90% of them SMEs.
Protection Needed
Aat Pisanwanich, an independent analyst in international economics, said Thai SMEs cannot compete with Chinese products in terms of price, leading to the closure of many factories in the country and causing job losses.
He said it is time for the government to introduce strong measures to address this issue.
In addition to implementing value-added tax measures for goods priced less than 1,500 baht, there should also be a ban on imported products priced less than 1,500 baht for sale via online platforms to create more space for Thai products.
Indonesia already adopted a similar measure, banning the sale of imported goods priced less than 3,000 baht on online platforms, said Mr Aat.
In addition, there should be a requirement that foreign platforms selling products online must ensure at least 30% of the products sold on the platform are Thai-made, he said.
The government should also review its policies on being a hub for distribution centres, free trade and free investment, said Mr Aat. After implementing free trade and investment policies over the past 10–20 years, the result has been Thai SMEs have gradually disappeared, he said.
Domestic investment promotion policies have not supported Thai entrepreneurs, said Mr Aat. Thailand has recorded higher investment volumes, but Thai entrepreneurs have not benefited, he said.
If foreign industries investing in Thailand do not use components or parts produced by Thai manufacturers, government investment policies should mandate it in exchange for state economic benefits, said Mr Aat.
Foreign investors should support a certain number of Thai entrepreneurs, he said.
For example, promotions for the electric vehicle industry should require a specific proportion from Thai supply chains, said Mr Aat.