Thai SMEs face debt tsunami as fresh defaults and overdue loans rise

Thai bank chiefs are warning that small businesses remain vulnerable to fresh defaults and a return to bad debt after restructuring, despite a decline in the commercial banking system’s overall non-performing loan ratio.

The Bank of Thailand (BOT) reported that the ratio fell to 2.82% in the second quarter of 2026. However, loans moving from Stage 2, which signals significantly increased credit risk, into Stage 3, or non-performing status, remain a concern.

Second-quarter flows into non-performing loans (NPLs) were put at about 110 billion baht, with new defaults accounting for 52 billion baht and loans returning to NPL status after restructuring at a similar level of approximately 52 billion baht. Related Nation Thailand coverage

BOT governor Vitai Ratanakorn said the overall NPL level was not unusually high, but deterioration in some segments, particularly small and medium-sized enterprises (SMEs), warranted concern. The central bank was accelerating preparations for new financial measures to help different groups meet their debt repayments.

Shared data needed to assess borrowers’ total debts

Krungthai Bank chief executive Payong Srivanich said lenders were doing what they could to support borrowers, but lasting debt relief required changes to the economic structures causing their difficulties.

Debt assistance had often been organised around individual obligations or activities, he said. A borrower-centred approach, which he described as “Debt-Centric”, would instead connect information showing how much each person or business owed and to whom. Incomplete information could allow borrowers to take on more debt than necessary.

Vulnerable customers were increasingly moving from commercial banks to non-bank lenders and state specialised financial institutions. Different data standards prevented commercial banks from seeing their full financial position and constrained lending.

“The playing field is uneven,” Payong said. Linking borrower information would give financial institutions more scope to help, and the BOT and Finance Ministry were treating the task as urgent.

At Krungthai, proactive restructuring could ease some difficulties. However, borrowers whose loans continued to deteriorate were often those already weakened by earlier problems.

Payong pointed to disruption from technology, changing trade and production structures, and new labour-market requirements. Electric vehicles were reshaping the automotive industry, while air-conditioner factories could maintain sales but replace workers with artificial intelligence, putting existing employees at risk.

“The best way to resolve debt is to increase income,” he said. But growth below expectations and industries unable to adapt quickly enough to successive shocks, including Covid-19, the energy crisis, war and global political changes, meant familiar debt remedies were no longer sufficient.

Government agencies and businesses should target assistance by sector, using linked information from social security, the Labour Ministry and industry to identify occupations and sizes of SME needing urgent support.

Payong said work to establish an asset management company jointly with Bangkok Commercial Asset Management (BAM) was more than halfway complete. Options for handling bad debt were being assessed.

KBank reduces exposure to small businesses

Kasikornbank (KBank) chief executive Kattiya Indaravijaya said Stage 2 loans were growing sharply across the industry. Borrowers already in arrears, but not yet more than 90 days overdue, were among those requiring close attention.

KBank’s exposure was less pronounced than the industry’s because it had tightened lending in 2022–2023, although monitoring remained essential. More factory closures and business shutdowns were becoming visible, including among some of the bank’s customers.

Kattiya said loan quality remained manageable, but that position reflected lessons from substantial losses in 2022–2023, when the bank had needed to make heavy provisions.

“The wounds are still fresh,” she said.

Those losses had prompted KBank to restrict new lending to some groups. Although the bank had faced criticism for withholding credit, she said the decisions were necessary to protect stability and explained its continued caution.

Retail borrowers had caused significant losses, particularly online sellers without documentation or bank statements that could support a reliable risk assessment. KBank was now placing greater emphasis on salaried customers with clear payslips and using credit scoring to assess both repayment capacity and willingness to pay.

For SMEs, the problem extended beyond funding or liquidity. Some business models could no longer compete and needed to be redesigned through technology adoption and diversification.

KBank had consequently reduced SME loans from 35–36% of its portfolio to 24%, while increasing the shares of large corporate lending and higher-quality retail loans.

Bangkok Bank maintains risk and provisioning plans

Bangkok Bank president Chartsiri Sophonpanich said bad debt had increased somewhat, in line with concerns identified by the BOT, but remained manageable as the bank continued helping customers.

Despite volatility, the bank had made no significant changes to its existing risk-management and provisioning plans, having prepared in advance for different risks.

Asked about the difference between interest rates charged to SMEs and large businesses, Chartsiri said Thai interest rates were relatively low in a broader comparison.

Long-term survival depended on competitiveness, he said. Businesses needed to find new markets, adapt their operations and strengthen their capabilities to keep pace with what he described as gradually improving economic conditions.

Weak businesses cannot recover through rate cuts alone

TMBThanachart Bank (ttb) chief executive Piti Tantakasem said the divide between the stronger and weaker parts of Thailand’s K-shaped economy was making debt problems more complex.

He characterised much of the stronger segment as import-focused electric-vehicle businesses that delivered limited benefits to the wider economy because they did not use Thai workers or domestic materials.

The weaker segment was broad and deteriorating further, he said, producing both new defaults and repeat defaults among borrowers whose loans had already been restructured.

“If a company is making losses from the outset because nobody is buying its products, or Chinese goods are taking its market, even cutting its interest rate to 0% will not get it through the crisis,” Piti said.

“The financial sector cannot solve the real sector’s problems.”

He warned that SMEs faced pressure from geopolitics, competition from China and large companies entering their markets.

Piti said ttb had kept bad debt manageable through continuing loan sales. But a lower NPL figure did not necessarily mean the underlying problems had eased.

He compared the situation to a house that appeared clean while its water bill kept rising: persistent credit-risk costs indicated that fresh bad loans were still arriving, requiring banks to write off or sell debt and repeat the clean-up every quarter.

Thailand needed to reinvent its economy and build stronger domestic supply chains, he said. A shared information hub would also help banks identify creditworthy borrowers who deserved another opportunity, reduce unequal access to finance and enable the government to direct support towards people in genuine poverty.

Credit bureau sees deterioration in smaller loans

Luxmon Attapich, chief executive of National Credit Bureau (NCB), said second-quarter data showed a clearer increase in bad debt after several quarters of relative stability, particularly in SME and retail lending.

Bank restructuring had helped contain difficulties, but the latest pattern pointed to greater financial fragility.

She highlighted special-mention loans, or SM loans, where payments were overdue but the debt had not yet become non-performing. Borrowers reaching 60 or 90 days in arrears without recovering their ability to pay risked moving into NPL status as the overdue period lengthened.

“We are beginning to see more SM loans turning into NPLs, mainly because borrowers’ ability to earn income has declined,” Luxmon said. Restructuring might provide relief for a few months, but borrowers could default again if their income did not genuinely recover.

Deterioration was particularly visible among very small businesses using nano-finance. Lending in that segment had expanded strongly as small traders, including sellers on e-commerce platforms, struggled to obtain ordinary commercial-bank credit.

However, nano-finance had a higher proportion of loans overdue by more than 90 days than other loan types, she said.

Personal loans used for consumption were another concern, with arrears exceeding 90 days rising markedly. Hire-purchase lending for mobile phones, computers and household goods also had higher NPL levels than other loan categories.

Source: Bangkokbiznews Vilchuda Phakdeesuwan