Thai SME crisis demands national action beyond cash injections

Thailand’s small and medium-sized enterprises have emerged as one of the most vulnerable parts of the economy, as financial and business indicators point to rising bad debt, prolonged credit contraction, weaker profitability and an increasing number of factory closures.

The widening gap between SMEs and large companies is also becoming more pronounced. While smaller businesses are struggling to obtain financing and withstand rising costs, large companies continue to expand borrowing and investment.

Bank of Thailand Governor Vitai Ratanakorn previously described non-performing loans, or NPLs, as one of the clearest signs of weakness in the Thai economy.

The overall NPL ratio rose from 2.85% to 2.97% in May 2026 and could continue increasing if economic growth remains weak, he said.

The most concerning issue is the sharp difference in loan quality among businesses of different sizes. The NPL ratio among SMEs stood at 9.5%, compared with only 1.5% for large corporate borrowers.

The disparity reflects both economic inequality and the declining competitiveness of smaller businesses.

SMEs have less power to absorb rising costs

Large companies generally have greater bargaining power and are better equipped to adjust to higher costs, while SMEs face more constraints and are more severely affected by weak economic conditions.

As SMEs are a major source of employment in Thailand, a continued contraction in lending to the sector could deepen the country’s K-shaped economic divide.

Businesses that fall into non-performing debt and cannot obtain new credit may be forced to reduce employment or close. The effects would then spread to household incomes, consumer spending and domestic economic activity.

SME support should become a national priority

Payong Srivanich, president of Krung Thai Bank Public Company Limited, said the condition of Thai SMEs was among the most serious economic concerns because the sector faced deep structural challenges.

Addressing the problem should therefore be treated as a national priority requiring urgent cooperation from every sector, he said, particularly because SMEs provide a substantial share of employment in the economy.

Payong compared many Thai SMEs to patients suffering from several complicated conditions at the same time. Without connected information, he said, doctors would be unable to diagnose and treat them effectively.

Improving data connectivity is therefore essential. This includes bringing businesses in the informal economy into the formal system so that authorities and financial institutions can see the full extent of their difficulties and provide appropriate assistance.

The challenges facing SMEs are no longer limited to a shortage of capital.

Many businesses lack the production skills needed to adapt to changing sales channels, higher operating costs, difficulties in sourcing raw materials and a transformed export environment.

“Survival does not depend on money alone,” Payong said.

Krung Thai Bank and the wider banking sector are working with the government and industry to help businesses restructure and revitalise their operations.

The objective is to help companies on the lower arm of the K-shaped economy move towards the upper arm, or at least remain stable long enough to make the necessary adjustments.

Support measures must be tailored to the condition of each business segment, in the same way that different patients require different medicines, he said.

Factory closures begin to outnumber openings

Kattiya Indaravijaya, chief executive officer of Kasikornbank Public Company Limited, has also warned that the Thai economy faces vulnerabilities in several areas.

One important indicator is the number of industrial factories opening and closing.

Historically, the number of new factories in Thailand was clearly higher than the number shutting down. The gap has now narrowed substantially, and quarterly data show that closures have begun to exceed new openings.

The challenge for businesses is therefore not merely to survive current economic conditions but to adapt rapidly to structural changes.

Kattiya said weak growth and rising costs were not the only threats. A greater concern was that some companies might fail to adapt quickly enough.

Businesses that continue operating with the same methods and business models face a growing risk of being severely affected by the changing economic environment.

Closures exceed openings for first time in 10 quarters

Dr Yunyong Thaicharoen, chief executive for economic research and sustainability at SCB EIC, said factory data were sending increasingly worrying signals.

Only 148 new factories opened in the first quarter of 2026, a fall of 61.6% from the same period a year earlier.

Meanwhile, 163 factories closed, an increase of 16.4% year on year.

The number of closures exceeded new openings for the first time in 10 quarters, dating back to the third quarter of 2023.

Industries recording increased factory closures included plastic products, food, metals, machinery, plant-based products, rubber products and wood products.

The increase was particularly evident among small factories employing no more than 50 people.

The figures reflect declining competitiveness among Thai businesses in traditional industries, especially small operators facing both weaker demand and increased competition from imported products.

Medium-sized and large factories, by contrast, continued to expand investment significantly in the first quarter of 2026 compared with the previous year.

The contrasting trends provide further evidence of a K-shaped economy, in which large businesses continue to grow while smaller companies and some traditional industries face mounting pressure.

SME lending contracts for 15 consecutive quarters

Credit data show a similar divide. SME lending contracted by 4% year on year in the first quarter of 2026, marking the 15th consecutive quarter of decline. Lending to large companies, meanwhile, grew by 2.7%.

SCB EIC data put the SME NPL ratio at 9.16% in the first quarter, compared with only 1.34% among large businesses.

Stage 2 loans, which represent another category of credit under pressure, accounted for 15.78% of total SME lending.

When Stage 2 and Stage 3 loans are combined, they represent almost one-quarter of the entire SME loan portfolio. That figure does not include loans that had already undergone debt restructuring.

Profitability has also weakened. The net profit margin of micro, small and medium-sized enterprises fell from 1.2% in 2024 to only 0.9% in 2025.

Large companies moved in the opposite direction, with their net profit margin rising from 5% to 5.3%.

Zombie firms remain concentrated among SMEs

Another sign of weakness is the proportion of so-called zombie firms, or businesses that remain in operation despite persistent financial difficulties.

Although the overall proportion declined from a peak of 7.3% in 2021 to 5.6% in 2025, it remained above the pre-Covid level.

The problem is also concentrated among SMEs. Zombie firms accounted for 5.8% of smaller businesses, compared with 3.2% of large companies, a difference of almost two to one.

SCB EIC said the difficulties facing SMEs could not be attributed solely to limited access to credit. They were also connected to weaker competitiveness, lower revenue and declining profitability.

Should these conditions persist, the gap between large companies and SMEs is likely to widen further, making Thailand’s K-shaped economic growth even more pronounced.

Structural reform needed instead of funding alone

Assistance for SMEs should therefore focus on structural problems and be tailored to each company’s potential, rather than relying solely on additional lending or cash support.

High-potential SMEs could be brought into advanced-technology industrial supply chains, while businesses that remain viable but face excessive costs should be helped to transform their operations.

Some companies could consolidate to achieve economies of scale, while businesses that lack long-term potential or operate in declining industries may need an orderly exit.

The overall message from financial and business leaders is that providing more money without addressing productivity, technology, market access, production costs and business models will not be enough to restore the health of Thailand’s SME sector.

SMEs squeezed by large companies and low-skilled workforce

Dr Amonthep Chawla, executive vice-president and head of research at CIMB Thai Bank, said the problems facing SMEs were not new but required serious attention, particularly as SME lending had contracted continuously for almost five years.

SMEs are also under intense pressure from large corporations and foreign businesses bringing imported goods into the Thai market, while many small and medium-sized operators struggle to adapt to the new economic structure and technological change.

Another major problem is workforce skills. Thai workers’ English-language and technological capabilities remain below those of competitors in ASEAN, including Vietnam, Malaysia and the Philippines. This weakens Thailand’s competitiveness and its ability to attract foreign investment.

In addition, many SME owners are approaching retirement age, and it remains uncertain whether younger generations will be willing to take over their businesses. Without sufficient incentives to adapt or continue these operations, succession could become increasingly difficult.

Should the SME situation continue to deteriorate, sales and purchasing power among middle- and lower-income groups would weaken. This would in turn affect private consumption and prevent it from serving as a full driver of economic growth in the future.

Long-term solutions must therefore go beyond financial assistance. Thailand needs to improve productivity, create incentives for younger generations to take over businesses and secure cooperation from all sectors.

Lending contracts as debt and business closures rise

Dr Kanjana Chockpisansin, head of research at Kasikorn Research Centre, said overall SME lending contracted by 5.1% during the first five months of this year, extending a decline that has lasted for 15 consecutive quarters.

SME lending is expected to remain down by 4.5% at the end of the year.

Loan quality has also continued to deteriorate. The SME non-performing loan ratio rose from 9.12% at the end of last year to 9.44% in the first quarter of this year.

The proportion of SM loans also increased from 15.81% at the end of last year to 16.15%, reflecting a continued decline in SME credit quality.

Data on SME-registered legal entities during the first seven months of this year showed that 52,264 new businesses were established, up from 51,462 during the same period last year.

However, business closures also rose to 9,152, compared with 8,083 a year earlier.

More than 55% of the businesses that closed were in the service sector. This was followed by 3,059 closures in the trade sector, with manufacturing and agriculture next.

Although new registrations still outnumber closures, the gap between the two figures has narrowed, highlighting the growing difficulty of keeping businesses operating under current economic conditions.

Federation backs national agenda for MSMEs

Dr Noppong Teerawor, president of the Federation of Thai SMEs, told Krungthep Turakij that the federation supported designating micro, small and medium-sized enterprises as a national priority.

The move would strengthen support for small businesses in every area and advance continued structural reform.

The federation has submitted a “blue book” compiling proposals from business operators nationwide under five urgent priorities.

1. Open markets and create trade opportunities: Accelerate the expansion of domestic and international markets, improve MSME access to government procurement and establish systems that allow small businesses to compete more effectively.
2. Unlock access to finance: Develop appropriate lending mechanisms and financial instruments, reduce collateral requirements and borrowing restrictions, and provide more opportunities for investment and business expansion.
3. Accelerate the adoption of AI and innovation: Promote the use of artificial intelligence, digital technology and innovation to improve productivity, reduce costs and strengthen business competitiveness.
4. Reform laws and business regulations: Improve laws, regulations and government procedures to increase transparency, reduce the burden of doing business and create a fair competitive environment for businesses of all sizes.
5. Prepare for the future economy: Support the transition to the digital economy, the green economy and future industries to secure sustainable long-term growth.

Noppong said small businesses needed an economic system that gave them access to markets, finance and technology, while allowing them to compete under fair rules.

“MSMEs are not only the majority of businesses. They are also a crucial foundation for employment, income generation and the distribution of economic opportunities to communities nationwide,” he said.

“If the government makes MSME Plus a national priority, it will help small businesses survive, grow and compete in the new economy, while strengthening the grassroots economy as an important engine of the country.”

Source: Krungthep Turakij