Banks on edge as large businesses face liquidity crisis amid economic uncertainty

Amid ongoing uncertainty in the global economy and Thailand’s economic outlook, large financial institutions are beginning to see the serious impact on their loan portfolios.

This is not limited to household debtors or SMEs, but is now affecting even the key pillars, such as large corporations, which are showing signs of weakness and vulnerability. This is reflected in declining performance, liquidity, and cash flow, continuing to diminish over time.

Arthid Nanthawithaya, CEO of SCB X Plc, said that given the increasing challenges, SCB X has been holding continuous discussions regarding credit risk management. The company has focused on closely managing risk management processes and improving the management of its portfolios across all areas. SCB X is preparing for all eventualities in the face of potential worsening situations, such as re-evaluating the loan approval process and improving customer management.

“We are making every effort to do our job as best as possible,” said Arthid. “It’s not just about protecting SCB X; we know we won’t survive if the whole system can’t continue. We’re working closely with our customers, not just staying in our ivory tower. We need to actively monitor the decision-making of senior management and involve the board in the process.”

He further emphasized that at this moment, it is not a time to rush business expansion. “It’s not a time to accelerate. At present, there are no customers ready to scale up their businesses or expand internationally. All countries are being cautious due to the high level of uncertainty that still exists.”

In terms of advice for entrepreneurs, Arthid emphasized that managing expenses and costs in this current climate is essential. These measures are crucial to mitigate risks and help businesses prepare for the uncertainties ahead.
Growing Fragility in Large Business Portfolios 

Payong Srivanich, CEO of Krungthai Bank (KTB), acknowledged that there are growing signs of fragility in the portfolios of large businesses, not just in the bond market, but also reflected in declining earnings and liquidity issues.

He explained that this fragility is not only due to deteriorating debtor status or aligning loan quality classifications with the current economic slowdown, but also due to the increasing risks that the bank is observing within these businesses.

The challenges faced by these businesses are widespread, affecting both domestic and international operations, influenced by factors such as supply chain disruptions, the tourism economy, and domestic consumption in various countries.

Despite these challenges, he admitted that loan growth targets for the year may be slower than initially expected, and there could be a slowdown compared to last year. However, he emphasized that loans should not go into the negative. Going forward, the bank is likely to focus more on selective segments to drive growth.

“Classifying loans is normal, and it’s something we are seeing more of, especially due to businesses facing challenges. Today, with the economic slowdown, fragile large businesses are slowing down. Therefore, we need to be more selective. This is normal, because the question is, where do we invest the loans, who will buy from us, how much, and what will the costs be?” Payong said.


BOT Highlights 4 Key Risks to Financial Stability 

The Bank of Thailand (BOT) recently published its assessment of Thailand’s financial stability for 2024, noting that the country’s economic and financial sectors could face significant impacts from both domestic and international factors. These include trade policies, structural issues within certain industries, the earthquake in Myanmar, and ongoing high household debt.

The BOT has identified four key risks that could affect financial stability in the coming months:

1. Investor Confidence and Fragile Markets

Investor confidence remains fragile and sensitive to both internal and external factors, including trade policies from major economies. Some sectors, especially those recovering slowly from structural problems and competition with China, are showing signs of weakness. The BOT warned that fragile investor confidence could lead to asset sell-offs, which would affect both institutional and retail investors. Additionally, this could result in increased borrowing costs and rollover risks for companies issuing bonds. If global asset prices fall significantly, it could lead to panic asset selling, further destabilizing the financial system.

2. Tighter Financial Conditions

The BOT noted that financial conditions are likely to tighten further, impacting liquidity for both businesses and households, as well as economic activities. In 2024, credit growth remained slow, and private sector debt has been shrinking due to reduced demand for loans, debt repayment, and rising credit risk. The U.S. import tax hikes will further pressure investment and trade, especially for businesses with significant exports to the U.S. that struggle to find alternative markets. This will particularly affect SMEs, which already face challenges in accessing credit and competing in the market, leading to lower debt repayment capacity and potential risks to employment and household income.

3. High Leverage Among Large Corporations

Some large corporations are becoming highly leveraged, which could increase their vulnerability. Although large businesses generally have a good financial position, those with high debt levels are becoming increasingly sensitive to economic conditions. If global and domestic economies suffer due to trade policies, these businesses could face financial difficulties, especially if they owe money to both financial institutions and private investors. This could undermine investor confidence and impact the financial system, particularly if these corporations are closely linked to the overall economy and financial system.

4. Real Estate Developers and Earthquake Impact

The financial stability of some real estate developers is further threatened by the recent earthquake and the slow recovery of the real estate sector. In 2024, the sector faced reduced demand due to weaker purchasing power and high household debt, especially for borrowers in financially fragile situations. The earthquake has also damaged confidence and demand for condominiums in the short term. Developers focusing on condominium projects may face reputation risks and difficulty selling properties, particularly if buildings were damaged in the quake. Developers with already weak financial positions may find it harder to repay debts, which could increase risks to the financial system.

(2025/06/05-00:00)