BANGKOK, Thailand – Nearly 12% of operating companies in Thailand are now at risk of becoming “zombie firms”, according to the Economic Intelligence Center (SCB EIC) of Siam Commercial Bank, highlighting growing financial pressure on businesses struggling to generate enough profit to service their debt. SCB EIC defines a zombie firm as a company that has been operating for more than three years and whose earnings are insufficient to cover loan interest for two consecutive accounting periods. The definition excludes newly established businesses that may not yet be profitable during their early years.
The risk is particularly pronounced in several sectors. Residential real estate, hotels and accommodation, and food and beverage businesses have the highest proportions of companies falling into the zombie-firm category. The share among small and medium-sized enterprises (SMEs) is also almost three times higher than among larger businesses. Real estate and hospitality face particular pressure because they typically require substantial investment and carry high debt and fixed costs, while their revenues depend heavily on economic conditions, consumer spending and tourism. When property sales slow, ownership transfers decline or hotel occupancy falls, businesses can face mounting pressure on cash flow while loan repayments and other fixed costs continue.
Many property companies have responded by cutting expenses, reducing staff and selling assets to raise liquidity and meet debt obligations. While debt restructuring and loan extensions can give businesses more time, SCB EIC’s analysis suggests that prolonged dependence on such measures can also indicate deeper difficulties in generating sufficient income to cover financing costs. The challenge becomes greater when economic growth remains weak. Businesses may be able to extend or restructure debt during periods of stronger growth, but a prolonged slowdown can make it increasingly difficult for companies with weak earnings and high financial costs to recover.
Bank of Thailand Governor Vitai Ratanakorn said businesses that lack the potential to survive, fail to adapt or cannot compete should ultimately be allowed to exit through normal market mechanisms. He said financial and government support cannot be extended to every SME and should instead focus on businesses that still have the potential to grow and are prepared to adapt to changing conditions.
The issue extends beyond the companies themselves. If a significant amount of bank lending remains tied up in businesses that cannot generate adequate profits, financial institutions may have less capacity or willingness to extend new credit to viable businesses. This is one factor cited in explaining why SME lending has remained negative for 16 consecutive quarters, as increasing business weakness has prompted financial institutions to apply stricter lending standards.
The growing number of companies facing zombie-firm risk also points to structural challenges in the business economy that cannot necessarily be solved simply by waiting for economic growth to recover. Businesses carrying high financial costs while facing weak competitiveness and changing consumer behavior may find it increasingly difficult to restore revenues and return to sustainable profitability.
The wider concern, therefore, is not simply the number of struggling property companies, hotels or other businesses. It is whether capital is being allocated efficiently across the economy. A genuine economic recovery ultimately depends on businesses being able to return to profitability, invest, create jobs and compete in a changing market. Government measures and financial support can provide time and prevent otherwise viable businesses from failing. But without adaptation and a return to sustainable earnings, some companies may continue operating without truly recovering.
