Bank of Thailand Creates SME Fund to Spur Growth

Central bank governor unveils measures to combat 'Grey Capital,' address household debt and structural weaknesses to unlock 100 billion baht in SME loans by 2026.

 

The Bank of Thailand (BOT) is dramatically expanding its mandate to tackle deep-seated structural issues in the nation’s economy, announcing the establishment of a Credit Guarantee Fund intended to unlock 100 billion baht in lending for small and medium-sized enterprises (SMEs) by 2026.

 

Speaking at his "Governor Connect Tour" event in Chiang Mai, BOT Governor Vitai Ratanakorn stated that while the central bank’s traditional role focused on macroeconomic stability, structural weaknesses now pose a significant risk.

 

Vitai stressed that the economy could not recover while SME credit continues to contract, a trend that has persisted for 13 consecutive quarters.

 

"Many SMEs need loans but are unable to obtain them because financial institutions are reluctant to lend due to high credit risk costs," Vitai explained. "We must create a new credit guarantee mechanism to reduce this burden."

 

The new fund, which will be set up in collaboration with the Ministry of Finance and the Thai Bankers' Association, will utilise approximately 20 billion baht from the Financial Institutions Development Fund (FIDF) to guarantee credit.

 

This cover is expected to reduce bank credit risk by an average of 20 per cent, incentivising greater lending to target sectors such as processed food, wellness, and green and digital investments. The fund is expected to be operational next year.

 

 

The SME measure is the latest piece in a comprehensive structural roadmap.

 

Vitai previously addressed mounting household debt by initiating the transfer of 1.6 million small-scale non-performing loan (NPL) accounts (worth up to 100,000 baht each) to the state-owned Sukhumvit Asset Management (SAM).

 

The BOT, which fully owns SAM, is overhauling its operations, aiming for up to 800,000 debtors to successfully exit NPL status by January 2026, re-entering the mainstream economy.

 

In a significant move to control illicit finance, the BOT will revert to the Financial Institutions Act to mandate that commercial banks report specific types of abnormal transactions directly to the central bank.

 

Currently, data on high-value transfers and suspicious transactions are solely reported to the Anti-Money Laundering Office (AMLO).

 

The new requirement will target unusual surges in account activity or transactions linked to activities like online gambling, helping the government control funds related to "Grey Capital."

 

The Governor also noted the lack of regulatory oversight on the domestic gold trading business, forcing the BOT to use the Foreign Exchange Act to request necessary data to monitor related currency transactions.

 

 

Addressing the recent appreciation of the Thai baht, Vitai attributed the strength not to central bank inaction but to genuine fundamentals: the US Dollar's weakening by 7% and a strong current account surplus.

 

He reaffirmed the BOT's desire for a weaker currency that better reflects economic conditions.

 

While stating the BOT is limited in its ability to heavily intervene by US "Currency Manipulator" criteria, he confirmed the central bank is prepared to utilise reserves if necessary to prevent excessive volatility.

 

Finally, Vitai pushed back against calls for Quantitative Easing (QE), arguing that Thailand's bank-dependent economy and short-term debt instruments mean that bond-buying would have a negligible impact on boosting lending.

 

He concluded that while tackling structural problems is the priority, the Monetary Policy Committee (MPC) retains the "room" to cut interest rates further if necessary to provide more robust support for the slower-than-potential economy.