BANGKOK (BLOOMBERG) – Many small and medium-sized enterprises (SMEs), the backbone of Thailand’s economy, are grappling with crushing debt that could force them to close their doors as the latest wave of Covid infections -19 darkens the outlook for a recovering economy.
“This cycle is much worse than last year and millions of operators are suffering,” said Sangchai Theerakulwanich, chairman of the Federation of Thai SMEs, which last month submitted a proposal to the government to strengthen support for companies. small enterprises. “If the situation continues until the end of the year, the nation will be in crisis, with 80% of us going bankrupt.”
Thai SMEs, many of which are concentrated in the tourism industry, have been particularly hard hit since the country closed its borders last year, sending the economy to its sharpest contraction in more than two decades. The situation worsened with daily cases and deaths at record levels, leading the government to impose new restrictions in late June.
The Bank of Thailand has repeatedly called for increased liquidity for SMEs, seen as crucial to any economic recovery.
So far, however, efforts to funnel billions of dollars in credit at low interest rates, institute loan repayment holidays, and offer credit guarantees have failed to revive the government. sector.
“Credit growth to large corporations has increased by more than 10% per year. Even for the household sector, credit growth has also increased by about 4% per year,” said central bank governor Sethaput Suthiwartnarueput in March. “The segment where credit growth has declined is SMEs.”
Thailand had 3.1 million SMEs last year, employing 12.7 million people, according to government data. The Thai Chamber of Commerce estimates that the actual number of SMEs could reach 5 million, as many small operators do not register with the authorities.
Last month, the central bank cut its forecast for economic growth for this year to 1.8%, from 3% previously, amid weak domestic consumption and repeated reductions in tourism prospects.
Before the pandemic, tourism contributed about 20% of the country’s gross domestic product – about double the global average – but the bank now expects just 700,000 visitors to enter Thailand this year, up from nearly 40 million in 2019.
Ms Patcharabhorn Salacheep, 34, who owns a body painting business for foreigners, closed outlets in Pattaya and Phuket last year as borders closed and tourism withered. After laying off 70 percent of her staff, she still has three stores in the Chatuchak weekend market in Bangkok, but only earns about 10 percent of what she used to earn.
She is looking to borrow money to support the business, but is unsure if she will be approved for a bank loan.
“If I don’t understand, my business might not survive this year,” Ms. Patcharabhorn said. “The government has never compensated us for what we are up against. What they are proposing are only debt restructuring and loans. They are pushing us into creating debt when we barely earn an income.”
The latest SME debt relief measures include 250 billion baht (S $ 10.48 billion) in low-interest loans for corporate restructuring and 100 billion baht for a “warehouse.” assets ”, where distressed businesses can temporarily park their distressed assets and get credit in return. .
Since the measures took effect in late April, around 24 percent of the total earmarked for low-interest loans has been used and less than 1 percent of the amount earmarked for the asset storage plan. Bank of Thailand Governor Sethaput said demand for the asset warehouse is expected to pick up later.
According to the Federation of SMEs, bank loans to small businesses total 3.5 trillion baht, of which 240 billion baht is non-productive. An additional 440 billion baht is valued only slightly higher and could turn badly by the end of the year if the economy does not improve, according to the federation.
“Liquidity is not a quick fix cure all,” said Naris Sathapholdeja, economist at Bangkok-based TMBThanachart Bank PCL.
“Those who will get soft loans are the ones with positive business prospects and income. If you are still in the process of restructuring debt with the banks or cannot generate positive income, you are unlikely to get the loans. Banks need to be careful in the current situation. No one wants to take on piles of bad debt after the situation calms down. “
Mr Sethaput said not all SMEs would be approved for the relief measures. The ones who should be doing it are the ones who can survive until the economy begins to recover.
“Not all businesses that get loans will survive,” the governor said. “If we lend what we have to all groups, it risks failing those who should survive. Everything has an opportunity cost.