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Bank of Thailand to end debt moratorium for SMEs

According to a press release from the Bank of Thailand, the concern is that while most businesses can now continue payments, an extension of the assistance measure could impact the long-term stability of financial institutions.

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BANGKOK (NNT) – The Bank of Thailand (BoT) has decided not to extend a general order to suspend debt repayment by SMEs to commercial banks set to end this October 22, instructing the institutions to consider such aid on a case by case basis instead, to protect the sector from long term impact.

BoT assistant governor for financial stability and strategy Roong Mallikamas, explained why the measure assisting SMEs with a credit line of no more than 100 million baht was not being continued, pointing out that of the 1.05 million eligible accounts, worth a combined 1.35 trillion baht in debt, up to half have indicated an ability to resume debt repayment after October 22. Of the total, 950 billion baht of the debt is owed to commercial banks.

Long term stability of financial institutions

According to a press release from the Bank of Thailand, the concern is that while most businesses can now continue payments, an extension of the assistance measure could impact the long-term stability of financial institutions.

The central bank is also worried that SMEs not affected by COVID-19 will take advantage of the measure and lose fiscal discipline. Use of the measure is estimated to wipe away 200 billion baht from commercial banks each year if maintained.

For businesses still genuinely impaired by the situation, banks will be allowed to consider their plight on a case by case basis and offer them help as needed.

Moving from blanket to targeted assistance for SMEs

Mrs. Roong Mallikamas, Assistant Governor, Financial Stability and Corporate Strategy Group, Bank of Thailand (BOT) revealed the following progresses of the measure on loan payment holiday under the Emergency Decree on Financial Assistance to Small and Medium-sized Enterprises Affected by Coronavirus Pandemic B.E. 2563 (2020) which will end on 22 October 2020.

          1. Small and medium-sized enterprises (SMEs) totaling 1.05 million accounts have availed themselves of the loan payment holiday with an outstanding debt of 1.35 trillion baht.

This figure is different from the 6.89 trillion baht outstanding debt of SMEs and individual borrowers which have been assisted by financial relief programs such as debt payment deferment and reduction, interest rate reduction, and preemptive debt restructuring.

         2. The BOT has been monitoring closely the financial impact of COVID-19, and does not anticipate any cliff effect following the end of the payment holiday due to the following factors.

1) Specialised Financial Institutions (SFIs) whose customers account for an outstanding loan of 400 billion baht, have already deferred payments for 3 – 6 months. Meanwhile, commercial banks with an outstanding loan of 950 billion baht have been closely monitoring their customers. Most of the customers indicated that they will be able to repay their debts when the loan payment holiday measure ends.

2) Commercial banks will continue to assist their customers, who are unable to repay their debts or can only make partial repayment, until their financial situations improve to be able to repay their debts. Such assistance programs include individual debt restructuring to reduce the probability of loan deterioration, interest rate reduction for credit card and personal loans, debt payment deferment, debt consolidation, and multi-creditors debt restructuring programs.

3) Only 6% of the total outstanding debt of 950 billion baht are cases where banks have not been able to get in touch or are in the process of contacting their customers.

         In addition, the lockdown measures brought about by COVID-19 have impacted businessdisproportionately. Businesses in the beverage, electrical appliance, and commerce sector are recovering near the pre-COVID-19 levels. On the other hand, businesses in the tourism sector are still slow running, particularly the hotel businessis at only 26% of the pre-COVID-19 level.

A proactive and more targeted approach

          The BOT has therefore opted for an approach away from a traditional and generic measure to a proactive and more targeted approach since the measure on loan payment holiday also has long-term negative consequences due to the following.

1) The loan payment holiday measure merely applies to a deferral of debt payment whereas interest charges continue to accrue during the holiday period. This interest payment obligation is a burden for borrowers in the long run.

2) The measure creates a moral hazard for borrowers that are in a position to continue servicing the loans. These borrowers may opportunistically decide not to service their loans.

3) Continuation of the payment holiday poses risks to the stability of the financial institution system as financial institutions will not be able to book the regular cash inflows. It is expected that the debt payment holiday will remove 200 billion baht from the financial system annually.

Borrowers who are capable to repay the loans are advised to continue to do so not only to reduce their burden in the long run, but also to provide financial institutions with cash flow to help other affected clients.

Borrowers who are unable to repay their debts – particularly those commercial banks have not been able to get in touch with – are advised to contact their respective banks for appropriate financial assistance.

         In addition, the BOT has allowed a standstill for financial institutions to maintain asset classification and provisioning until the end of 2020 for borrowers who are in process of debt restructuring. This is to encourage financial institutions to expedite debt restructuring with their customers. Also, the BOT has worked closely with relevant organizations, such as the Federation of Thai Industries and Board of Trade of Thailand, to identify businesses that are severely affected by the COVID-19and in need of assistance.

          Borrowers who have been unable to get in touch with their banks or unable to agree upon mutual solutions on debt restructuring with their banks may contact Debt Exit Fast Lane at https://www.1213.or.th/App/DebtCase to find solutions with their banks.

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