BOT chair urges legal reform as SME lending keeps shrinking

Bank of Thailand (BOT) board chairman Somchai Sujjapongse has called for faster legal reform and closer scrutiny of banks’ lending decisions, citing nearly 17 consecutive quarters of shrinking credit to small and medium-sized enterprises (SMEs).

In his first media interview as chairman, Somchai questioned whether lenders were rejecting viable borrowers, taking too long to assess applications and charging smaller businesses interest rates that exceeded their actual risk.

Checks on rejected SME loans

Somchai proposed random checks on rejected applications at commercial banks with unusually high rejection rates. The aim would be to establish whether lending criteria matched borrowers’ risks, including in business sectors facing widespread refusals.

He argued that data initiatives such as Your Data, or Open Data, Data Bureau and SME Credit Portal had yet to deliver the tangible results expected. SMEs Credit Boost and SMEs Secure+ were necessary tools, he added, but insufficient to reverse the lending contraction.

Somchai also questioned whether large businesses were receiving interest rates below those warranted by their risk, while SMEs paid more. He raised the issue of banks earning returns by placing surplus liquidity in the BOT’s repurchase, or repo, market.

 

Research highlights unequal access to credit

A study published by the Puey Ungphakorn Institute for Economic Research (PIER) on August 21, 2026, identified wider weaknesses in how finance reaches productive businesses.

The research examined financial statements from 1999–2024 alongside BOT loan-level data, using a corporate database covering about 700,000 entities in 2024. Loans from financial institutions accounted for more than half of formal external financing measured through loans, bonds and equity.

More than 80% of the companies in the database had no recorded commercial bank loans. Even among the most efficient 30% of businesses, only about one in five SMEs had bank credit, compared with more than 60% of large companies.

Business lending figures for 2025 showed more than 75% of credit concentrated among about 15,000 large companies. Roughly two-fifths of that lending went to 25 major corporate groups, identified as SiCorp, comprising approximately 1,000 businesses. About 110,000 SMEs shared approximately 25% of total lending.

Among highly efficient businesses, small firms faced interest rates of approximately 7.8%, against 3.9% for large companies. SMEs carried greater credit risk: their non-performing loan ratio was about 9.0%, compared with 1.3% for large businesses at the end of 2025.

However, the researchers’ model found that small and medium-sized businesses still paid more than their assessed risks and financial characteristics would explain. Large companies and SiCorp businesses paid less than the model predicted.

The analysis controlled for factors including default risk, profitability, revenue growth, collateral and business age. The researchers cautioned that it did not account for bank-specific factors such as funding costs and competitive strategies, so the unexplained gap should not automatically be treated as evidence of unfair pricing.

The study linked credit allocation problems to declining efficiency across the economy. Average economic growth slowed from 5.3% in 2000–2007 to 3.7% in 2010–2019 and 2.4% in 2021–2025.

Between 2013 and 2024, return on assets fell from 8.3% to 6.3%, even as profit margins increased from 6.7% to 7.1%. Revenue generated by each baht of assets dropped from THB1.24 to THB0.88, with weaker asset utilisation across manufacturing, traditional and modern services, and property.

Declining efficiency within existing companies was the largest negative contributor, followed by weak performance among new entrants. Capital moving between companies failed to improve overall efficiency, while the departure of inefficient firms provided only limited benefits.

The researchers proposed five responses:

1. Improve credit assessment through credit records, alternative data and verified trading information.

2. Develop government and trading-partner guarantees with participation costs reflecting borrowers’ risks.

3. Set lending rates that better reflect actual credit risk.

4. Increase competition and funding options for SMEs and start-ups.

5. Monitor unusually low interest rates relative to risk to limit the build-up of financial vulnerabilities.

Legal review produces one proposed amendment

Somchai described the slow pace of legal reform as his biggest disappointment since taking office on June 2, 2025.

His priorities included modernising laws under the BOT’s responsibility, removing policy constraints and keeping pace with financial technology. He also wanted clearer public communication, stronger staff understanding of the real economy and grassroots communities, and protection of international reserves.

The board had instructed management to study possible legal changes in June 2025. Nearly 18 months later, Somchai said, management had proposed changing only one section of the Financial Institution Business Act.

He noted that the review had relied mainly on internal working groups, which concluded that changes were unnecessary. He also questioned concerns that pursuing amendments could expose the process to political pressure.

Somchai called for input from the Finance Ministry, the Office of the Council of State, the Office of the National Economic and Social Development Council and other stakeholders, so the review would address practical constraints more fully.

Governor earns pass but key concerns remain

Somchai gave the BOT governor an overall passing assessment, citing greater attention to macroeconomic conditions and growth, clearer communication and measures addressing specific problems. However, he identified legal reform, SME lending and the prioritisation of measures as areas requiring improvement.

He also questioned whether reported reductions in cash withdrawals and gold transactions demonstrated progress against illicit funds.

The BOT had reported declines of 57% and 85%, respectively, following measures targeting such money. Somchai argued that the figures alone were insufficient evidence, because transactions might have been split into amounts below reporting thresholds to avoid scrutiny.

Source: Thansettakiij