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.