The Bank of Thailand insists that banks, under the new financial accounting standard, can extend fresh working capital loans to commercial loan defaulters who are in the debt restructuring process without loan-loss provision requirements for the new loans.
According to Thai Financial Reporting Standard 9 (TFRS 9), due to take effect next year, working capital loans extended to commercial loan defaulters who are under debt restructuring are classified as performing loans, said Jaturong Jantarangs, assistant governor of supervision group 1.
The central bank allows financial institutions to upgrade their debt defaulters to Stage 2 from Stage 3 if they are able to service the debt for three months in a row, and they can be grouped as Stage 1 if a bank analysis finds that they have the potential to pay debt and their credit risk is improved.
Banks need not wait for these commercial loan defaulters to honour the debt for nine straight months to upgrade their debt to a performing loan as stipulated by the Federation of Accounting Professions, Mr Jaturong said. Banks can analyse debt servicing ability based on their customers' cash flow and sales, he said.
The central bank will support banks offering new working capital loans to defaulters who are under a debt restricting scheme if they see business potential for the long term and if the fresh loan is classified as a performing loan under TFRS 9.
The Bank of Thailand's move aims to help business operators who are in the debt restructuring process to better access fresh funding amid the sluggish economy.
Troubled debt restructuring classified as a non-performing loan (NPL) in Stage 2 to comply with TFRS 9 is not required to be reported to the National Credit Bureau.
According to the forward-looking information principle of TFRS 9, loan quality is classified in three stages: Stage 1 is a performing loan that needs a one-year expected loss (EL) for provision. Stage 2 is classified as higher credit risk under the lifetime EL for provision, and Stage 3 is NPL, which will be under the lifetime EL for provision.
"Hopefully the debt restructuring scheme will help business operators, particularly small and medium-sized enterprises (SMEs), that have business potential to survive," Mr Jaturong said. "Most financially ailing SMEs are affected by the previous floods and the sluggish economy."
The central bank also expects the debt restructuring scheme to serve as a means to keep a lid on SMEs' NPLs and ease the financial burden of the customer segment amid economic uncertainties.
Distressed debt among borrowers has continued to tick up.
Mr Jaturong said the central bank sent a circular to banks for better understanding of the debt restructuring scheme, hoping to persuade them to provide additional credit lines to SMEs.
"For next year, banks should pay more attention to the existing loan portfolio and restructuring debt classified as Stage 1 and Stage 2," he said.