The Bank of Thailand (BOT) has issued BOT Announcement No. Wor 277/2563, dated February 28, 2020, to provide relief measures for small and medium-sized debtors who suffer adverse economic effects from the COVID-19 pandemic. The key points of this announcement are summarized below.
Revised Definition of Debt Restructuring
Under this announcement, “debt restructuring” means restructuring of debt arising from a debtor’s increased credit risks, which can be divided into two categories:
- Debt restructuring for loans that are not yet classified as Non-Performing Loans (NPLs). This type of debt restructuring is preemptive, and will commence once the debtor starts demonstrating issues with debt repayment. The debtors are not yet classified as NPL, but have Net Present Value (NPV) loss; and,
- Debt restructuring for NPLs deemed to be Troubled Debt Restructuring (TDR), regardless of whether there is NPV loss.
Guidelines for Relief Measures for Debtors from January 1, 2020, until December 31, 2021
The BOT has requested cooperation from Specialized Financial Institutions (SFIs) (i.e., state-owned financial institutions established and defined under specific laws, such as the Government Savings Bank, Export-Import Bank of Thailand, and Small and Medium Enterprise Development Bank of Thailand) to provide preemptive financial support to debtors who face direct and indirect adverse impact from the outbreak (e.g., providing additional working capital, loan moratoria, packing credit or trust receipts, renewal of credit limits, and cutting interest rates).
Scope of debtors entitled to the relief measures
The debtors entitled to the relief measures under this announcement must have potential to continue business operations or repay debt in the future, and must be:
- Debtors whose debt has been classified as Non-NPL (classified as normal or Special Mention) since January 1, 2020;
- Debtors whose debt became an NPL on or after January 1, 2019, except where the SFI can prove that a debtor whose debt became an NPL before January 1, 2019, is an NPL debtor adversely affected by the economic loss.
SFIs which provide relief measures to debtors that meet the above criteria must comply with the following measures.
- Formulation of policy for relief measures. SFIs must formulate a clear policy for the provision of relief measures and criteria for considering debtors who are adversely affected by the COVID-19 outbreak.
- Classification of debtors. SFIs can immediately classify Non-NPL debtors (normal debtors or Special Mention debtors) as normal debtors, provided that the result of the SFI’s analysis shows that the debtors can perform obligations under a debt restructuring agreement. This kind of debt restructuring will also be deemed preemptive, and will not be deemed as TDR.
- Working capital. The SFIs can classify the provision of additional working capital to debtors to facilitate their business operations during debt restructuring, provided that the debtors have sufficient cash flow for repayment or have repayment capability when taking other factors into consideration.
- Reserve requirements. SFIs are required to comply with BOT notifications regarding reserve requirements for SFIs.
- Relevant personnel for debt restructuring. If an SFI has insufficient personnel for debt restructuring, the BOT temporarily allows loan officers to perform work related to debt restructuring, provided that the SFI has put in place policies for checks and balances.
- Reducing minimum amount due on credit cards. SFIs can consider reducing the minimum amount due on credit cards, for debtors who are adversely affected by the COVID-19 outbreak, below 10% of the outstanding amount.
- Report to the BOT. SFIs are required to submit reports to the BOT detailing target loans and outstanding debts of the debtors who are subject to these measures.
- Communication. The SFIs are required to internally communicate relief measures both within the organization and externally to debtors.
These measures should provide strong relief for small to medium sized debtors that are suddenly facing financial difficulties as a result of the unexpected disruption caused by the COVID-19 outbreak. In addition, the BOT is expected to provide additional measures if and when the situation escalates.