BoT adopts targeted debt relief measures, not broad-based, for SMEs

BoT adopts targeted debt relief measures, not broad-based, for SMEs

Measures pushed to next June for firms that have not fully recovered

Roong Mallikamas, assistant governor for financial stability and corporate strategy group, Bank of Thailand.
Roong Mallikamas, assistant governor for financial stability and corporate strategy group, Bank of Thailand.

The Bank of Thailand has implemented targeted debt moratorium measures, scheduled to end next June, for small and medium-sized enterprises (SMEs) with a credit line below 100 million baht and have difficulty servicing existing debts.

The targeted measures will end on June 30, 2021. This will only apply to targeted SMEs that cannot cope with repaying loans to financial institutions due to business operations not being fully recovered.

The central bank implemented broad-based debt relief measures on April 23 to help SMEs reeling from pandemic fallout, but the measures were scheduled to end on Oct 22.

Roong Mallikamas, assistant governor for financial stability and corporate strategy, said the central bank will let banks and non-bank companies negotiate with debtors as to whether they can repay debts normally or prefer to continue with the debt moratorium scheme for another six months.

Banks and non-bank companies will have to collect SME information for the extended debt moratorium by December of this year.

The value of debtors receiving debt relief measures in the formal banking system totals 6.89 trillion baht, with 1.35 trillion baht attributed to SME loans of 1.05 million accounts.

Of the 1.35-trillion-baht amount, 950 billion baht from 319,000 accounts making up 79% of total SME loans is classified as SME borrowers with incurred debt of less than 100 million baht. Commercial banks and non-bank companies are creditors of this SME loan portion.

Of the 950-billion-baht sum, 57 billion baht or 6% from SME loans provided by commercial banks and non-bank companies is categorised as SME borrowers that banks and non-bank companies have been unable to contact.

The majority of SME borrowers say they intend to service their debts normally when the debt moratorium programme expires next Thursday, according to the central bank.

"The Bank of Thailand has asked financial institutions to try contacting the 6% of SME debtors," Mrs Roong said. "They will have more than two months or until the end of December to find them [debtors] and offer an opportunity for debt moratorium for another six months or to service their debts normally."

She said financial institutions can also consider adjusting debt-servicing conditions for customers on a case-by-case basis to prevent a rise in non-performing loans, as well as adopting other tools such as reducing interest payment for credit cards and personal loans and the suspension of instalment payments.

Borrowers can resume repaying the full amount when the situation returns to normal, Mrs Roong said.

"The Bank of Thailand has been monitoring the situation closely and expects that there won't be a lot of debt defaults in a very short time [cliff effect] after the debt moratorium scheme ends," she said. "This is because SME debtors whose creditors are specialised financial institutions, with loans totalling 400 billion baht, will continue to be under the debt moratorium scheme for another six months. The majority of SME debtors, owing a combined 950 billion baht to commercial banks and non-bank companies, also intend to repay their debts."

The main reason for targeted debt moratorium measures, as opposed to blanket measures, is to prevent long-term negative repercussions, Mrs Roong said.

Debtors are still shouldering interest burdens during the debt moratorium, while targeted measures are a means to discourage moral hazard, as some debtors, who have not been heavily affected by the crisis, may opt to take this opportunity to delay debt repayment.

The longer period of debt moratorium will also adversely affect financial stability, with an estimated 200-billion-baht loss in liquidity incurred from suspended repayment of the principal amount and interest, Mrs Roong said.

With the eased lockdown measures, each business sector has resumed operations, albeit at a varying pace.

Businesses related to drinks, agriculture, appliances and petrochemical products have seen a good recovery, according to the central bank.

On the other hand, tourism-related businesses have recovered slowly compared with activity before the crisis.

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