The Bank of Thailand has voiced concerns about the debt repayment capacity of some domestic corporations carrying heavy debt burdens amid increasing economic headwinds.
According to the central bank’s 2024 Thailand Financial Stability Assessment, certain businesses, classified as highly leveraged large corporations (HLLCs), have accumulated high debt levels compared with their peers, though the overall financial health of large corporations remains robust.
The potential impacts from increased US tariffs on Thai exports could affect the economy and weaken lender and investor confidence in the business sector, noted the central bank.
Although creditors and investors remain confident in HLLCs’ repayment abilities due to their generally strong performance, the increasing leverage in this segment warrants close monitoring, even as short-term risks to financial stability remain limited.
The continued increase in corporate debt levels has led to an accumulation of financial vulnerabilities, reducing the ability of some firms to withstand negative shocks. This is particularly concerning for HLLCs, whose revenues and debt servicing capacity are relatively sensitive to economic conditions, noted the report.
As of 2024, total borrowing by HLLCs amounted to 6.1 trillion baht, with bank loans contributing 2.9 trillion baht or 22% of total corporate loans outstanding.
Borrowing stemming from corporate bonds tallied 3.2 trillion baht, representing 62% of total corporate bonds outstanding.
Within the HLLC group, the debt-to-equity (D/E) ratio has steadily increased from an average of 0.97% in 2022 to 1.13% in 2023 and 1.23% in 2024. In contrast, the average D/E ratio for general SET-listed large corporations has remained relatively stable at 0.49% in 2022, 0.56% in 2023 and 0.47% in 2024.
“If global or domestic economies are significantly impacted by international trade policies, some HLLCs would face higher financial strain and repayment difficulties,” the report said.
In addition, tightening financial conditions in Thailand are affecting business and household liquidity, as well as economic activity, noted the central bank.
In 2024, credit growth remained weak and corporate bond issuance declined due to reduced credit demand, debt repayments and higher credit risk in certain borrower segments.
According to the report, the US tariff hikes could hamper investment and trade, particularly in export-oriented sectors, while small and medium-sized enterprises already struggle with limited credit access and competitiveness. This might reduce employment and household income, affecting debt repayment capacity and increasing caution among lenders and investors.
The report also highlighted concerns about increased fragility in the property sector.
The financial position of some property developers has weakened further due to the recent earthquake, compounding the slowdown for the real estate sector.
Last year property demand declined due to weak consumer purchasing power and high household debt levels, particularly among financially vulnerable borrowers. There is a glut of unsold housing units priced less than 3 million baht.
Investor sentiment remains fragile and highly sensitive to both domestic and global factors amid heightened uncertainty about US trade policies, noted the report.
“Declining investor confidence may lead to asset sell-offs, potentially affecting asset prices and the financial health of institutional and retail investors. This could increase borrowing costs and refinancing risks, including bond rollover risk,” stated the report.
“A sharp global asset price correction could trigger panic selling and pose systemic risks.”