Survey: Lending structure may cause economic harm

The structure of lending in Thailand, which has a high concentration of lenders and borrowers, could have a widespread impact to the country’s economic system in the event that there is a change in lending supply from large banks or demand from large borrowers, the central bank’s think tank says.

The top five banks dominate with 70% of the country’s total loans, while one-tenth of borrowers make up 70% of total lending, said Nasha Ananchotikul, section head for monetary policy at the Puey Ungphakorn Institute for Economic Research.

An institute survey also found that twothirds of the surveyed companies rely as the source of their borrowing on only one bank, while three-fourths of small companies used the lending services of only one lender.

Relying on only one bank as a borrowing source might make their business highly sensitive to fluctuations in loan supply, Ms Nasha said.

However, the structure could reflect a strong relationship between creditors and borrowers.

The survey, which was conducted over 2002-14, polled 20,484 firms, of which 3,406 were large firms with a minimum credit line of 20 million baht, 5,285 were mediumsized firms, and 11,793 were small firms.

Lending policy between local and offshore banks differed in that the latter, during the global financial crisis of 200709, slowed lending significantly, while the former delivered positive loan growth.

After the crisis, overseas banks played a greater role in loan expansion in the Thai market, while local banks decelerated their loan growth.

Moreover, Ms Nasha said smaller business operators had lower negotiating power than big companies based on business sensitivity.

It was more difficult for SMEs to access borrowing sources from financial institutions than large corporate firms.

In terms of demand, there was loan demand from the SME sector regardless of burgeoning or sluggish economic trends.

“For SMEs, investment decisions depended less on business opportunities than funding source accessibility,” Ms Nasha said.

Large corporate companies had no problems accessing loans, yet the country’s domestic investment has decelerated. In this scenario, it suggested that financial facilities were not the key factor for private investment and economic confidence could be more important.