SMEs delay debt payments as costs and weak demand squeeze profits

Thai small and medium-sized enterprises are under growing financial strain as weak domestic demand, rising costs and tighter credit conditions squeeze profits and force more businesses to delay debt repayments.

The Bank of Thailand’s latest credit overview for the first quarter of 2026 showed that overall non-performing loans, or NPLs, remained broadly stable at 2.85%, up only slightly from 2.84% in the previous quarter.

However, the picture was more concerning for SME loans. NPLs in the segment rose to 9.16%, from 9.03%, partly because the loan base had contracted and partly because some borrowers had become more fragile.

Many SMEs had already been vulnerable before the Covid-19 pandemic.

Overall lending returned to slight growth of 0.2% after being in negative territory for almost two years. SME lending, however, remained in contraction for a 15th consecutive quarter, slipping to -4.0% from -3.9% in the previous quarter.

One factor was that commercial banks had become more cautious in extending loans to both groups.

Several agencies have also warned that SMEs are facing increasing pressure.

The National Economic and Social Development Council reported that Thailand’s industrial situation in the first quarter of 2026 showed worrying economic warning signs.

For the first time in two and a half years, or 10 quarters, the number of factories closing exceeded the number of newly opened factories.

The situation reflects an uneven economic recovery, with medium-sized and large businesses still able to expand while SMEs are slipping into recession and facing more closures, particularly vulnerable sectors exposed to economic risks from the Middle East situation.

Citing Department of Industrial Works data for the first quarter of 2026, the NESDC said 156 factories shut down, up 11.4%, while only 139 new factories opened, down sharply by 63.9% year on year.

This was the first time in 10 quarters, or since late 2023, that closures had outpaced new openings, a key indicator of weakening confidence in new investment amid multiple risks.

At the same time, 99.3% of new employment was concentrated in large and medium-sized factories, showing that economic opportunities have not spread evenly to the grassroots.

Small businesses have not benefited from new openings or expansions in the same way as medium-sized and large firms.

The most worrying group is small factories employing no more than 50 workers.

Investment and employment at factories that closed rose from the same period last year, especially among metal product and plant-based product businesses.

These closures were driven by declining competitiveness, weaker demand, low-priced imports flooding the market, and persistently high raw material and energy costs.

SMEs as small boats in a storm

Peerapong Nitikraiwut, head of ttb’s business customer strategy group, said at the bank’s “SME Insight 2026” survey event that 2026 would be a challenging year for SMEs, with the overall condition of Thai SMEs now “worrying”.

He compared SMEs to “small boats” caught in a major storm at sea, saying their competitiveness had continued to decline.

SMEs account for about 70% of total employment, or more than 13.6 million workers.

Yet their contribution to GDP is only around one-third, lower than in developed countries such as South Korea, where the share is about 45%.

SMEs face pressure from every direction

Peerapong said Thai SMEs are being pressured by both domestic and external factors.

First, they are operating in a slow-growing Thai economy expanding by only 2-3%, while household debt remains high at around 90% of GDP. This has directly weakened consumer purchasing power.

At the same time, Chinese goods and entrepreneurs are flowing into Thailand and Asean in greater numbers after China’s economy slowed and Chinese exports to the United States fell by 40-50%.

Many business operators have said costs are now their heaviest burden, including transport, energy, electricity and raw materials, which have become both more expensive and harder to obtain.

Selling through online platforms also carries high gross profit fees, leaving some businesses with very thin margins and pushing others into losses.

Survey finds 33% of SMEs have no business plan

An in-depth survey of more than 120 SME business customers found five key problems preventing Thai SMEs from growing.

The first is that many SMEs are thinking only about survival rather than how to win in the market. They use digital tools but cannot transform their businesses. They know their profit and loss figures but do not manage risk. They grow in size but not in efficiency. Finally, many want to move forward but have no roadmap.

The first major constraint is mindset and the lack of a business plan. Many operators remain focused on survival rather than looking for ways to compete and win.

The survey found that about 33% of operators had almost no business plan, or only a short-term plan of one to two years. Another 27% were thinking only about how to keep the business alive and continue supporting employees. Businesses without clear planning often faced sales declines of more than 30%.

The second constraint is the superficial use of digital technology and AI. Although more than 87% of SMEs have started using digital tools and 59% have begun using AI, more than 60% of these businesses saw no sales growth or suffered falling sales because their usage remained basic. They were unable to use technology to restructure their businesses or create real added value.

The most commonly used digital system among SMEs remains digital banking for transfers and payments, while the use of AI to improve business operations remains limited.

“From our study of four key industries that still have growth potential, the crucial point is that SMEs must shift their mindset from waiting for help to looking for market niches, or specific customer groups they truly understand, in order to build a competitive advantage and increase their long-term survival prospects,” Peerapong said.

SMEs delay debt payments as credit slows

Outstanding SME loans in ttb’s portfolio currently stand at 80 billion baht, while Peerapong acknowledged that SME lending across the industry is slowing.

This is consistent with Bank of Thailand data showing SME loans have contracted for 15 consecutive quarters. Overall SME loan balances have fallen for several quarters, partly because banks are more cautious in lending and operators are more careful about investment.

SME operators’ sales have now fallen by an average of about 4-5%, reducing demand for loans and reflecting the continued slowdown in the SME sector.

However, the bank hopes the market may be close to passing its lowest point. For SME loans, ttb is maintaining its growth target at a level close to the bank’s overall target of 0-2% this year.

“Today, we are seeing more SMEs facing problems and delaying debt repayments, particularly repayments by ttb customers and payments to trade creditors, because sales have not met expectations. This trend is still continuing. We are seeing more payment delays. Has it reached a level that makes us panic? Not yet. We are still monitoring it, and we do not feel comfortable. As for our SME portfolio, we believe we can still manage and control it,” Peerapong said.

Concerns over prolonged impact

Peerapong said the full impact had not yet materialised because the war had not ended and oil prices had not stabilised. The bank must assess whether the situation will be short- or long-term and how it will affect each level of its customer portfolio.

Most loan applications at present are for liquidity support rather than investment.

The quality of the bank’s loan portfolio has continued to improve as it has learned more and become more selective with borrowers, especially by choosing customers with long-term competitiveness and industries supported by government policy.

These include businesses linked to the Reinvent Thailand project, which the bank wants to support further because it still sees growth opportunities.

Energy-intensive SMEs under watch

The groups requiring special attention remain industries directly affected by higher energy costs and scarcer raw materials.

These include heavy commodity industries such as steel, where costs are high but businesses cannot fully pass them on to customers, while demand has not fully recovered.

The bank is therefore monitoring these sectors closely and choosing to grow cautiously.

Peerapong said that with SMEs facing more difficult conditions, tools are needed to help them gain better access to loans, liquidity and financial support.

The bank has launched ttb SME Smart Plus to support SMEs and help businesses access programmes such as Credit Boost and soft loans. It aims to extend 6 billion baht in loans under this campaign this year.