Banks to seek amendment to debt rules

Banks to seek amendment to debt rules

Tweak would remove delays in restructuring

Banks are set to propose an amendment to the revised law related to guarantees in the Civil and Commercial Code, which would allow borrowers to undergo debt restructuring without guarantors' consent.

Boontuck: Protecting guarantors' rights

The move would allow debtors to proceed with their debt restructuring quickly, which could be a win-win for borrowers, lenders and guarantors, said Boontuck Wungcharoen, chairman of the Thai Bankers' Association (TBA).

Guarantors' burden will be reduced if the debt restructuring is successful, said Mr Boontuck, who is also TMB Bank's chief executive.

"We only want to amend this one issue and the request is aimed at protecting guarantors' rights, and shielding debtors and banks from potential damages. Guarantors will not be affected by the change," he said, adding the amendment is considered good practice as it protects guarantors' rights.

The revised law stipulates that debt restructuring can proceed after it has received consent from guarantors, but banks have expressed worries that this requirement could delay the debt restructuring process and damage debtors, guarantors and lenders.  

The revised law was published in the Royal Gazette on Nov 13 and will take effect Feb 11. However, it can be amended again before it comes into effect.

The amendment would require a guarantee to clearly specify the guarantor's obligation in terms of duration and amount of the guaranteed obligation.

This will limit the guarantor's liability. Currently banks can require the guarantor to agree on unlimited liability through "all money" guarantees, which usually results in the guarantor becoming liable for new loans taken out by a borrower.

But the law has sparked concerns that it could affect corporate lending and loans to state enterprises or projects as guarantors' liabilities are lessened. 

Mr Boontuck clarified that banks, on behalf of guarantors for exports and imports, must take full responsibility if buyers are unable to pay for purchases, even after the amended law comes into effect.

The TBA will submit its proposals this week to the Bank of Thailand, which will forward them to the Finance Ministry.

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