Thailand’s credit crunch opens door for Singapore capital
SMEs account for over 90% of registered businesses in Thailand but are increasingly shut out of the formal credit system
THAILAND is entering a credit crunch that monetary easing alone cannot resolve. The fault line lies in credit allocation. Banks are retreating from small-business lending; corporate bond markets remain fragile; and restructuring channels are limited. The result is a widening funding gap for otherwise viable small and medium enterprises (SMEs).
SMEs account for over 90 per cent of registered businesses in Thailand but are increasingly shut out of the formal credit system. While overall corporate loan outstanding has steadily grown to more than 13 trillion baht (S$514.5 billion), SME loan balances have contracted by 8.8 per cent annually over the past five years, according to Bank of Thailand data. As banks prioritise refinancing over new credit, even cash flow-positive smaller businesses risk becoming credit-invisible.
For mid-sized listed firms, the bond market is no refuge. Once buoyant, it has shrunk by more than 20 per cent since the 2022 Stark Corporation scandal. With equity markets dominated by the top 20 large caps in a handful of sectors, Thai midcaps have fewer funding options.
Filling the SME credit gap
Private credit can play a transformative role. Globally, it is one of the fastest-growing asset classes and now totals nearly US$2 trillion, based on US Federal Reserve data. But in Thailand, the market remains underdeveloped and fragmented. Large private funds occasionally provide structured debt to blue chips, while fintech startups extend nano-loans mainly to consumers.
In between lies a financing white space for SMEs too big for digital lending but too small for capital markets.
The International Finance Corporation estimates Thailand’s SME funding gap at over US$100 billion – more than double that of Vietnam or Malaysia. This makes it one of the largest SME credit gaps in Asean, second only to Indonesia.
For Singapore-based funds, family offices, and alternative lenders, this is an attractive frontier. Flexible structures such as revenue-based financing, asset-backed loans, or mezzanine debt can be tailored to local realities, where speed and repayment flexibility often matter more than pricing.
The sweet spot is not only cash-strapped firms with solid backlogs or margins, but also growth-oriented smaller companies. Many mid-sized businesses eye capital expenditure to expand or digitalise but avoid equity financing due to dilution concerns.
With steady cash flows, they can service additional debt if structured flexibly. Revenue-linked or deferred repayments create headroom while preserving control. Importantly, these SMEs see private credit at rates of 10 to 15 per cent as cheaper than equity, which is typically 15 to 20 per cent once the cost of capital is factored in.
For investors, these yields are also compelling since they sit well above Thai government bonds and bank deposit rates, ensuring a healthy spread over local benchmarks. Such borrowers present more attractive profiles than distressed cases.
Structural frictions and risks
Despite abundant opportunities, investors must navigate systemic frictions in Thailand. Bankruptcy proceedings are slow and court-dependent, delaying business recoveries and eroding value. Governance and accounting transparency also vary widely, demanding rigorous due diligence and local structuring expertise.
Unlike Japan’s Industrial Revitalization Corporation of Japan or South Korea’s Kamco, Thailand lacks a centralised turnaround institution and a cadre of specialists to coordinate creditors or provide guarantees. This institutional gap leaves private credit players facing higher execution risk.
The scaling challenge
Scaling private credit in Thailand and Asean requires securitised SME loan pools backed by diversified cash flows – structures better suited to institutional mandates than deal-by-deal lending. Regional platforms are essential – Singapore funds may centralise operations while partnering with local originators for sourcing and monitoring.
Currency risk is another hurdle. Funding is largely in US dollars while SMEs borrow in local currencies. Blended structures – USD pools deployed into local tranches with hedging or development-finance risk-sharing – can help bridge the gap. Flexible tools such as revenue-linked repayments or pooled SME loans further reduce idiosyncratic risk. For investors, operational discipline matters as much as pricing.
A lack of repayment data and credit ratings creates a chicken-and-egg dilemma. Securitisation cannot scale without data, yet data will not emerge without transactions. This deadlock calls for credit enhancement through public-private partnerships. Multilaterals or SME banks can absorb first-loss risk, enabling private investors to take senior tranches with greater confidence. Pilot blended-finance deals can establish repayment records and pave the way for scalable SME platforms.
By contrast, credit guarantees remain stopgaps. They help banks extend loans but do not mobilise new investors or deepen markets. By pooling risk, securitised platforms anchored in Singapore could attract institutional capital and channel funding at scale.
Singapore’s strategic role
With its concentration of regional asset managers and family offices, Singapore has the liquidity and expertise to serve Thailand’s underserved SME segment. Investors with regional structuring experience are natural candidates to fill this gap. While some funds are experimenting with deal-by-deal opportunities, the market remains largely underdeveloped – leaving ample room for first movers.
For Singapore investors, the appeal extends beyond monetary returns. Addressing Thailand’s SME credit gap provides diversification away from crowded developed markets and reinforces Singapore’s strategic role as Asean’s financial hub by channeling capital to viable businesses neglected by banks. Early entrants can also capture reputational benefits by delivering returns and regional impact.
This trajectory aligns with Asean’s push for financial inclusion. Anchoring SME finance in Singapore and extending structured credit regionally can help build a more resilient Asean financial architecture. A pan-Asean SME platform, potentially backed by multilateral partners, could pool risk, standardise structures, and expand access to capital across borders.
Towards Asean financial resilience
Thailand’s credit crunch is more than a cyclical slowdown; it reflects a structural decoupling of capital from viable demand. For Singapore investors, this is a strategic opening to finance SMEs as banks retreat. Returns remain attractive if risk is managed through diversification and stronger governance.
With a funding gap of US$100 billion, the opportunity is substantial. Well-structured deals can deliver risk-adjusted yields above regional benchmarks while also stabilising the backbone of Thailand’s economy. For Singapore’s alternative lenders and family offices, the case for regional diversification is compelling.
More broadly, supporting viable Thai SMEs could serve as a template for regional roll-out, strengthening ASEAN’s financial resilience in the face of mounting economic uncertainty.
The writer, CFA, CPA, is a Thailand-based strategic finance adviser.
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