The Bank of Thailand is considering adding a haircut method to the third phase of debt relief measures to help borrowers reeling from lower income caused by the virus crisis.
The regulator has discussed an additional debt relief instrument with financial institutions to respond to the actual requirements of borrowers on a case-by-case basis for the third phase of debt relief.
Cutting the principal on loans could be a solution to increase the debt-servicing ability of borrowers, attracting them to join the debt relief programme.
An additional instrument will better help customers who have been affected by the outbreak, said Ronadol Numnonda, deputy governor overseeing financial institution stability.
The central bank is also considering creditors' pool agreement and setting the same standard for debt relief conditions. This will simplify loan conditions for banks and help borrowers understand conditions more easily.
Financial institutions will receive incentives from regulatory bodies. For instance, a tax incentive could incentivise offering financial assistance for clients as much as possible.
"We will finalise the third-phase debt relief measures as soon as possible to cope with an expiration of the second-phase measures in October and to continue helping borrowers," said Mr Ronadol.
"The additional instrument of both haircut and polled-creditors would offer to both individual and commercial borrowers."
The central bank forecasts Thailand's economic recovery would transpire this quarter after the country managed to contained the virus outbreak quite well.
The economy will take around two years to normalise to an economic growth ratio similar to the pre-pandemic growth rate.
For the third-phase debt relief measures, the central bank requires financial institutions to prepare for several financial instruments responding to requirements of borrowers rather than executing a blanket policy.
General financial assistant measures were implemented for the second phase. But in the event of extending the general assistant measures, this would weaken financial institutions and stifle the overall financial system.
Central bank governor Veerathai Santiprabhob recently said the central bank would prolong the 500-billion baht soft loan scheme that will expire this year-end to year-end 2021, aiming to support liquidity of small- and medium-sized enterprises battered by the pandemic.
Under the decree, the soft loan scheme extension is allowed for two six-month rounds.
The central bank has discussed with the Thai Credit Guarantee Corporation on prolonging the debt guarantee under the central bank's soft loan scheme from the existing two-year condition.
Separately, Niyot Masavisut, president at state-owned Sukhumvit Asset management (SAM), which manages the Debt Clinic, the central bank's debt restructuring scheme of unsecured loans, said SAM aims to buy bad assets from financial institutions worth 10-15 billion baht this year, while the amount is expected to increase to around 20 billion baht next year.
With the existing central bank's debt relief measures, this would help contain banks' non-performing loans for this year, although distressed debts for the overall banking sector are expected to increase next year, said Mr Niyot.
SAM plans to raise more funds to prepare for bad assets purchased next year through banks' credit line and bond issuance. Under the regulation, SAM can incur debt of no more than 2% of the debt to equity (D/E) ratio. The company's existing D/E is at 0.6%, he said.