The idea of setting up a national asset management company (AMC) is not needed as the current scale of non-performing loans (NPLs) can be managed with debt assistance measures on a case-by-case basis, says the Bank of Thailand.
Commercial banks have continued to provide financial aid to customers who cannot repay their debts on a case-by-case basis following the expiration of the central bank's first-phase debt relief measures on Oct 22.
Given the difficulties amid the Covid-19 pandemic, some businesses, particularly those in the tourism industry, have had to shutter their operations permanently or temporarily close as they await economic conditions to return to normal before being able to reopen.
Under the central bank's mandate, commercial banks have 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 that are having difficulty in servicing their existing debts.
The measures are set to end on June 30, 2021. This only applies to targeted SMEs that cannot cope with the repayment of loans to financial institutions due to their business operations not having fully recovered.
With this solution in place, the domestic banking industry has been able to contain the NPL ratio despite prospects of rising bad loans due to the pandemic and an uneven economic recovery, said central bank governor Sethaput Suthiwartnarueput.
As NPLs have been mitigated by debt relief measures, there is no need to establish a national AMC as the central bank expects commercial banks to be able to manage distressed debts properly, while the number of borrowers exiting from the debt relief programme is a sign that suggests improvement in debt servicing, said Mr Sethaput.
The Thai Bankers' Association proposed a warehousing concept for asset management to the central bank, which could take the form of one of several possible business models. The central bank has been carefully studying each proposal.
Other organisations in the capital market and private fund segment have also proposed concepts for an asset management fund, with some suggesting a model for tourism businesses containing a cluster of assets forming an underlying asset fund.
"The Bank of Thailand is ready to support such an idea and ease regulations based on the overall benefits and feasibility of the business model," said Mr Sethaput.
The market mechanism is another key factor for initiating such an asset management fund, as the move is dependent on several parties, he said.
The three core parties central to the concept are the creditor, borrower and an asset management firm. Mr Sethaput said each party may require different conditions and details relating to pricing, ownership and the need for a professional fund manager, for example.
Some borrowers seem to want to restructure debts with their creditors and receive an additional credit line to continue business operations, rather than transfer their loans to be managed by an AMC, he said.
The NPL problem during the 1997 Asian financial crisis differed from the current situation as bad loans ballooned to 48% of the total loan portfolio of Thailand's banking industry, with the majority attributed to large corporate loans.
This year the NPL ratio of the commercial banking sector was recorded at 3.14% in the third quarter, up from 3.09% and 3.04% in the second and first quarters, respectively. The higher NPLs mainly come from SME loans and this type of loan has more subtle details when compared with wholesale loans.
The warehousing concept established to manage SME loans and assets will have to take into account investors' interests and possible returns on investment, said Mr Sethaput.
Each financial institution has a different business philosophy and way of managing NPLs, he said.
Some of them want to manage distressed debts to yield a better return rather than selling bad assets to companies that manage distressed assets.
Patchara Samalapa, co-president at Kasikornbank (KBank), said the bank is also studying the warehousing concept and is awaiting a clearer direction from the central bank.
The bank remains focused on helping customers through debt restructuring and managing bad debts via financial assistance measures, said Mr Patchara.
As there are no foreign tourists arriving in Thailand with regular tourist visas, hotel business operators have been experiencing a deeper liquidity crunch, with salary reductions and staff layoffs on the rise within the hospitality industry.
In terms of KBank's customers who are hotel operators, there have been no business closures yet. KBank's outstanding loans for hotel businesses represent 12% of its total loan portfolio worth 2.1 trillion baht.
KBank, the country's largest commercial lender by total assets, launched two financial packages to directly help hotel businesses with a total budget of 1.2 billion baht.