Banks are calling for the liability of guarantors to be similar to that of co-signers in the amended Civil and Commercial Code, saying it could otherwise hurt international trade and borrowing as well as corporate loans.
The reduced obligations of guarantors has sparked concern that loans guaranteed by commercial banks and the government as well as export credit guarantees and international borrowing could be affected, said Boontuck Wungcharoen, chairman of the Thai Bankers' Association (TBA).
He said there could be uncertainty among international parties about selling products to Thai importers, as banks, on behalf of guarantors, had lowered liabilities.
For example, banks now issue a letter of credit to guarantee that an exporter will receive payment in full even when a buyer is unable to pay for the purchase.
The amended code, which has already been published in the Royal Gazette and will take effect next February, will limit the liability of loan guarantors, while creditors now treat guarantors as co-signers, and they are liable to pay the full amount of the debt when borrowers default. The new law requires guarantees to specify the duration and amount of the guaranteed obligation and to specify the main agreement that is being guaranteed. The guarantor's liability will then be limited.
The lower burdens of guarantors under the amended law could have a ripple effect on the business sector and the overall economy, Mr Boontuck said.
"The law governing guarantees is an important instrument in conducting business and driving the economy. We should separate assistance to guarantors of retail loans from the effects on large companies," he said.
The TBA will hold a meeting of its members tomorrow to discuss the code before forwarding it to the Bank of Thailand next week for proposal to the Finance Ministry later.
Mr Boontuck said retail and small business borrowers could benefit from the amended law, but banks might require co-signers and additional collateral.