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Thailand Industrial Finance
The government did not use a mandatory allocation system or
interest controls to affect the distribution of credit among
industrial subsectors or regions or classes of industrial
borrowers. The interest rate ceiling, however, did limit credit
availability to small and medium industrial firms. Therefore,
most credit went to the larger firms, which were mainly engaged
in import substitution and were concentrated in the Bangkok
metropolitan area.
Commercial banks, finance companies, and the Industrial
Finance Corporation of Thailand (IFCT) were the main suppliers of
credit to the industrial sector. Commercial banks accounted for
nearly 70 percent of the total credit granted to the
manufacturing sector by the mid-1980s, the finance companies 24
percent, and IFCT the rest. Although the share of the IFCT was
modest, it was the only one that offered extensive term-financing
on a project basis. It was a private institution, but its mandate
was to grant loans for projects having a low financial rate of
return, which were unacceptable to commercial banks but were
important to the economy as a whole. Such loans were possible
because of the government guaranty for liquidity assistance to
small borrowers and soft-term loans. The activities of the IFCT
were hampered, however, by its being limited to fixed assets
financing and by the lengthy project-evaluation procedure.
Finance companies tended to deal with smaller borrowers than
did commercial banks in their lending to manufacturing firms
because they were allowed to charge higher rates to offset the
higher risk associated with smaller borrowers. Yet, because of
the limited regional spread of their branch networks and their
limited resources, they could not fill all the gaps left by
commercial banks, such as the supply of long-term loans.
Commercial banks provided the widest range of services.
Besides credit, they offered checking services, short-term trade
credits, guarantees for third-party borrowing, foreign exchange
services, and letters of credit. The breakdown of bank loan
portfolios showed 19 percent for discount of trade bills, 58
percent for overdrafts, and 23 percent for loans. Because
discounting and overdrafts were short-term activities, the 23-
percent share for loans meant that long-term financing was scarce
relative to short-term financing. Because fixed assets such as
land and buildings represented the preferred collateral for
banks, smaller borrowers with fewer fixed assets tended to be
limited in their access to loans. Once a borrower had pledged its
assets to banks for short-term financing, it could not use the
assets for collateral with another institution, such as the IFCT,
for long-term loans.
Data as of September 1987
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