The Bank of Thailand has approved in principle commercial banks setting up a bank-owned asset warehouse to freeze non-performing assets (NPAs) in the hospitality sector, according to a banking industry source.
The NPAs would mostly be classified as property assets, such as hotels and serviced apartments, because the hospitality sector has been slammed by the pandemic, according to the source who requested anonymity.
"The central bank is allowing banks to set up their own [asset] warehouse to manage NPAs, rather than setting up a centralised warehouse," said the source.
"Such an asset warehousing model should shore up confidence for hotel business operators because the asset management is handled by their creditors."
The model would allow both the creditors and borrowers to deliberate asset management conditions under a targeted framework on a case-by-case basis, with regulatory oversight provided by bodies such as the Finance Ministry and Bank of Thailand.
Business operators who transfer their assets to an asset warehouse and wish to buy them back at a later stage would want to generate liquidity to repurchase the asset, said the source.
Soft loans could support borrowers' liquidity requirements.
The government should waive asset transfer fees and corporate income tax liability under the warehousing model to attract both banks and business operators to join this debt solution scheme, said the source.
The Bangkok Post reported in November regulatory bodies and the private sector were studying viable options, such as asset management funds, to help hotels overcome the pandemic and retain employment.
Asset sales and pricing need to be acceptable for both the creditor and borrower.
Ronadol Numnonda, deputy governor for financial institutions stability at the central bank, earlier said the bank was not concerned about underpricing because the asset quality would have to be classified as performing loans.
Business operators would have sufficient bargaining power given such asset quality, which differs from when bad assets were sold during the 1997 Asian financial crisis, he said.
SOFT LOAN AMENDMENT
No specific details on the asset warehousing concept have been published by the central bank. However, the idea has started to take shape as financial sources have learned about the proposal, which has yet to win any formal approval.
Under the asset warehousing model, there would be expenses in three core areas, said the source.
The first is related to asset transfer fees, revolving in the form of a two-way transfer from business to bank and vice versa.
The other two expenses would be corporate income tax and an asset maintenance cost.
The government is likely to subsidise or waive asset transfer fees and corporate income tax liability, as well as support borrowers' liquidity by using a portion of the 500-billion-baht soft loan decree. However, these conditions would be rolled out after an amendment is made to the soft loan decree and other related legislation.
"Basically the asset warehousing concept would use a budget of around 30-50 billion baht, while the government is likely to prepare a budget of around 100 billion for the scheme," said the source.
It would take around 3-5 years for assets to be frozen in correlation with a tourism recovery."
Some hotel business operators, particularly those experiencing a liquidity crunch and unable to service debt liabilities during the pandemic, could apply for the asset warehousing scheme.
Others may have applied for the debt restructuring programme and may not require a debt pay-off by transferring assets to a warehouse, said the source.
It would take at least three years for the domestic hospitality business to return to normal as the prolonged pandemic has caused a major hiccup in Thailand's reopening plans, according to Kasikorn Research Center (K-Research).
Although preliminary details would suggest the asset warehousing concept may take the form of sales of hotel business loans to financial institutions at agreed prices and terms, rather than setting up a new entity to specifically oversee the transfer of debts from commercial banks, the main objective still revolves around the sale of hotel assets or transfer of hotel ownership to commercial banks, said K-Research.
The move would reduce principal and interest burdens shouldered by hotel business operators and beef up financial liquidity, according to the think tank.
The asset warehousing concept would also allow operators to continue renting and maintaining the quality of hotel assets, while simultaneously providing an option for operators to conduct asset buy-backs once their businesses recover.
But further practical details still have to be assessed, said K-Research. These include the potential of expanding the scope of the coverage to other business segments; banks' assessment criteria for participating business operators; the term conditions of asset sales and ownership transfers in tandem with provided loans; rental conditions after asset sales; prices of asset buy-backs and related insurance; and a possible exemption or relaxation of tax burden and fees related to asset transfer.