This is not a scene from the 1997 film Titanic. On the evening of April 14th 1912, a small Canadian fishing boat, skippered by a French-Canadian captain called "Jacques-Chai", approached the Titanic wanting to convey a very important message to Captain Edward Smith. The message was that there was a sea of icebergs, one was particularly big, about 200 miles ahead.
The big one was big enough to sink the Titanic. He strongly advised the captain to change course to avoid a potential disaster. Captain Smith ignored the warning from the strangely named French-Canadian and kept the Titanic on course.
Why did Captain Smith not listen to Captain Jacques-Chai? First, who was this guy "Jacques-Chai"? Icebergs were not uncommon, particularly at this time of year. Second, an iceberg had never wrecked any big ship before. Third, the Titanic was the biggest and strongest ship in the world. It would cut through any iceberg with ease. Last, the Titanic was under the control of a highly skilled captain.
The unfortunate facts were that the Titanic was not the strongest ship in the world and the big iceberg proved too big to handle. Titanic was built using brittle steel with a high sulphur content and its rivets were of low quality, making it fragile. With such risks, a scout ship should have been sent ahead to spot any iceberg threats. By the time Captain Smith saw the iceberg, it was only a quarter of mile away and a collision could not be avoided.
For a ship as big and grand like the Titanic to sink, three conditions had to be met at the same time. The first was the fragile quality of the ship itself. The second condition was the frigid weather that produced the sea of icebergs. And, the last condition was the existence of a mega-sized iceberg. All three conditions combined in the early morning of April 15 and the story of Jack and Rose became the best movie of the year.
The above story is fictional but the following isn't.
The Thai economy is comparable to the Titanic's build quality in the sense that it is a fragile one. Although it might look heathy with 2.5% GDP growth for 2024 after 2.0% growth the year before, in reality, it is plagued with many problems from dwindling competitiveness, an unsustainable debt burden, to ineffective fiscal and monetary policies.
The government boasts about recent high export growth and rising tourist numbers, but it failed to tell the public that export growth was mostly from Chinese re-exports, causing the 2024 trade surplus to be slightly lower than that of 2023. Thailand's trade deficit with China for January 2025 was US$5.7 billion, the highest for at least two decades.
On the hope of tourism income, it is true that tourist numbers are now close to the pre-Covid period. However, they are spending almost 20% less per head as high spenders like Chinese tourists are being replaced by economic Indian and Malaysian visitors.
The 145 billion baht cash handout in Q4/2024 and another 30 billion baht in January 2025 show that fiscal stimuli can fail. Consumers are too weak to consume without bank credit. The handout amount is nowhere near their usual credit amount obtained from banks, which was more than half a trillion baht per year.
The policy interest rate cut in October 2024 and another one a few weeks ago were complete jokes. Theoretically, the rate cut was meant to encourage loan expansion. In fact, Thai banks recalled credit worth 158 billion baht in January 2025. Another sign of economic fragility is the Thai stock market dropping to well below 1,200 points despite policy support and interventions.
If the fragile Thai economic structure is comparable to the Titanic's problematic build quality, the zombie Thai financial system is comparable to the frigid Canadian weather in April. Normally, the Thai banking system would extend more than 700 billion baht of new loans to support both consumption and production annually. Loan expansion was at a normal level of 732 billion baht of in 2023. But the expansion was reduced to 124 billion baht in 2024. The situation became disastrous when the usual loan expansion turned into a contraction of 158 billion baht in January 2025.
Similar contraction has happened in the 4.6 trillion baht corporate bond market, which used to expand about 400 billion baht per year and is an important source of corporate funding. Each year, mature bonds of about 900 billion baht are fully refinanced and another 400 billion baht of new issues are also made. However, the corporate bond market shrunk by 217 billion baht in 2024. It was not because of tight liquidity conditions, it was because investors were concerned about credit quality.
How will Thai corporates survive in 2025 with the financing and corporate debt market of bank contracting at the same time? Shall I turn on the song My heart will go on? Not yet, wait for the third condition -- a mega-sized iceberg.
The mega-sized iceberg is debt that is too big to pay back, even the interest payments. Thailand's total outstanding debt as of 2024 is 223% of GDP, which is one of highest in the world. With that level of debt, to be able to service just the interest payments without paying a single baht on principal repayment, Thai nominal GDP growth would have to be 10.9% (assuming an average 4.0% interest cost). At present nominal GDP growth is 3.5%, so only one-third of debts can be serviced fully. Bad loans now outnumber good loans. No wonder banks have been recalling loans while investors have been abandoning the corporate bond market.
If the macro-picture of the debt situation is not yet convincing, I will cite an actual case. Since this is a real case, I will have to protect myself from possible legal liabilities by concealing the name and by scaling financial figures. Let's go.
This example is a prime Thai company with top credit ratings. It has annual sales of 100 billion baht with annual profits of 6 billion baht. It clearly runs good business with a 6% profit margin.
The problem is, much like Thailand, it has too much debt. It has 170 billion baht of financial debt (170% of sales), resulting in 11 billion baht in annual interest cost. Six billion baht of cash profit with 11 billion baht of interest payments means the corporate is short of cash by 5 billion baht. Moreover, it has 45 billion baht of principal repayments due each year.
If the Thai financial sector was not frozen by frigid weather, this would be a piece of cake. The example firm would borrow an additional 5 billion baht from any bank to fill its financial gap and issue top-rated corporate bonds of 45 billion baht which would be fully subscribed in no time. But 2025 is not a normal time for Thailand, as explained.
All these conditions will converge in 2025: (1) fragile economy, (2) frozen financial sector and (3) over-sized debt obligation. The Thai economy is most likely to sink like the Titanic did in the early morning of April 15 , 1912. I am not giving the time frame. A famous fortune teller says that it would be after April 21. Ha, ha.