Abstract
Private debt—both corporate and household—is high in Thailand. Elevated private debt is an important source of financial sector vulnerability and could be a drag on growth. A strong insolvency regime can help facilitate the exit of non-viable firms and restructure private debt in an orderly manner. This chapter reviews (i) Thailand’s insolvency regime by identifying its main strengths and areas of improvement; (ii) discusses key principles for corporate and household debt restructuring; and (iii) offers cross country experiences regarding private debt restructurings.
Private Debt Restructurings—Lessons from International Experiences1
Private debt—both corporate and household—is high in Thailand. Elevated private debt is an important source of financial sector vulnerability and could be a drag on growth. A strong insolvency regime can help facilitate the exit of non-viable firms and restructure private debt in an orderly manner. This chapter reviews (i) Thailand’s insolvency regime by identifying its main strengths and areas of improvement; (ii) discusses key principles for corporate and household debt restructuring; and (iii) offers cross country experiences regarding private debt restructurings.
A. The Pandemic and Private Sector’s Balance Sheets in Thailand
1. Household and corporate debt levels have increased during the COVID-19 pandemic and could be a drag on growth. Private debt levels in Thailand are at record highs. The sharp increase in debt levels is particularly pronounced for households, reaching 89.7 percent of GDP in 2021Q3. However, non-performing loans (NPLs) barely increased since the onset of the COVID-19 pandemic owing to the effect of debt restructuring, regulatory relaxation measures on loan classification and management of NPLs on banks’ books. High private debt often exerts a drag on growth through reduced investment and distorted resource allocation (IMF, 2022). This is particularly the case for household debt in Thailand (IMF, 2019).
2. Household debt is slightly skewed toward mortgages. On the supply side, commercial banks, specialized financial institutions and saving cooperatives account for about 43, 28 and 15 percent of household debt, respectively. On the demand side, mortgages account for about 35 percent of household debt compared to an average of 72 percent in advanced economies and 45 percent in emerging markets. Car loans account for about 12 percent of household debt. Mortgage loans are overall held by high income and relatively well-educated households (Figure 1).
Thailand: Mortgage Loans by Income and Education
Citation: IMF Staff Country Reports 2022, 301; 10.5089/9798400221316.002.A004
Thailand: Mortgage Loans by Income and Education
Citation: IMF Staff Country Reports 2022, 301; 10.5089/9798400221316.002.A004
Thailand: Mortgage Loans by Income and Education
Citation: IMF Staff Country Reports 2022, 301; 10.5089/9798400221316.002.A004
3. The Thai authorities have introduced a number of relief measures to help households and firms weather the COVID-19 shock. Overall, policy support shifted from broad-based measures at the onset of the pandemic to a more targeted and tailored approach since the beginning of re-opening period in May 2020 (see Table).
4. An orderly withdrawal of the pandemic relief measures is needed to limit the pressure on private sector’s balance sheet while minimizing financial sector risks. The private sector’s balance sheet are closely linked to the financial sector’s balance sheet. For example, the debt payment deferment (e.g., six-month debt holiday for SMEs in April 2020, two-month debt holiday in July 2021 lockdown) and individual debt restructuring such as extension of debt repayment period, interest rate reduction, etc. are two sides of the same coin in the private and financial institutions balance sheets. The total amount of loans under relief measures (LUR)2 in Thailand’s financial institutions decreased from 36.6 percent of commercial banks, non-banks and specialized financial institutions’ outstanding loans at the onset of the crisis to 16.6 percent at the end of 2021 and further declined to 14.1 percent in March 2022. On the supply side (chart), specialized financial institutions seem particularly exposed (they account for 42.5 percent of total loans under relief measures at the end of 2021 but only about 15.3 percent of total assets of financial institutions). On the demand side, SMEs but particularly households are the main beneficiaries of the relief measures (Figure 2).3 A large portion of the outstanding loans under relief measures will require debt restructuring if the economic situation deteriorates.4 A strong insolvency regime can help facilitate the exit of non-viable firms and restructure private debt in an orderly manner.
Thailand: Loans Under Relief Measures
Citation: IMF Staff Country Reports 2022, 301; 10.5089/9798400221316.002.A004
Thailand: Loans Under Relief Measures
Citation: IMF Staff Country Reports 2022, 301; 10.5089/9798400221316.002.A004
Thailand: Loans Under Relief Measures
Citation: IMF Staff Country Reports 2022, 301; 10.5089/9798400221316.002.A004
B. How Robust is Thailand’s Insolvency Regime?
Enterprises Debt Restructuring and Insolvency in Thailand
5. The crisis preparedness of the Thai insolvency regime for enterprises has been recently assessed by Fund staff. This assessment is based on aspects of the international standard that are most relevant in the context of corporate debt crises. The Thai system shows some strengths, particularly in reorganization and in aspects of the institutional framework, but there are areas for improvement (chart).
Thailand: Crisis Preparedness
(Index)
Citation: IMF Staff Country Reports 2022, 301; 10.5089/9798400221316.002.A004
Sources: Araujo et al. 2022Notes: The higher the value of the sub-indicator, the higher the level of crisis-preparedness.Thailand: Crisis Preparedness
(Index)
Citation: IMF Staff Country Reports 2022, 301; 10.5089/9798400221316.002.A004
Sources: Araujo et al. 2022Notes: The higher the value of the sub-indicator, the higher the level of crisis-preparedness.Thailand: Crisis Preparedness
(Index)
Citation: IMF Staff Country Reports 2022, 301; 10.5089/9798400221316.002.A004
Sources: Araujo et al. 2022Notes: The higher the value of the sub-indicator, the higher the level of crisis-preparedness.6. There is a lack of informal and hybrid restructuring options. Thailand developed an enhanced debt restructuring mechanism to tackle the corporate debt overhang resulting from the Asian financial crisis (the so-called “Bangkok approach”). This mechanism lapsed, as it was conceived as an interim crisis measure, but it left the positive legacy of a negotiating culture for debt restructurings. Informal debt workouts, however, can become challenging with many creditors with opposing interests.5 There are no hybrid restructuring solutions (i.e., restructuring procedures with limited court intervention), such as preventive insolvency procedures, or pre-packaged reorganization plans. Support and advice programs for SME restructuring would be useful.
7. Corporate reorganization is the strongest part of the Thai insolvency system. The procedure has proved valuable in the preservation of the going concern value of large enterprises. However, the use of reorganization procedures in Thailand is still low. Among the requirements to access reorganization is a minimum debt amount of THB 10 million. Reorganization includes critical elements such as a broad stay of creditor actions, the treatment of executory contracts, new financing, and the preparation and approval of a reorganization plan by the classes of affected creditors. There are technical aspects that could be improved, but the procedure is generally compliant with international standards.
8. The simplified procedures for the reorganization of SMEs can be further improved. In 2016, the law was amended to make reorganization accessible to SMEs. The debt threshold was reduced to THB 3 million, the preparation and approval of plans was simplified, and subject to a shorter implementation period. In August 2021, the Thai Cabinet approved a set of proposals for legislative amendments that could increase the functionality of these procedures, such as increasing the debt threshold up to a maximum of THB 50 million, allowing SMEs not registered as such to use the procedure6 and to commence reorganization without a prepared plan, and a faster procedure for approval of the reorganization plan (Crosio, 2021).
9. Corporate liquidation does not produce significant value for creditors. A peculiarity of Thai law is that the same regime applies for corporate and individual bankruptcy—and arguably, the regime does not work effectively for neither category of debtors. Liquidation or bankruptcy is only initiated at the creditors’ request. In this way, liquidation operates as the last resort for creditors, who do not receive significant payments in it. The main reasons for the inefficiency of bankruptcy are that distributions are delayed for procedural reasons, and that the automatic stop of the business activities of the debtor, together with the freedom of secured creditors to enforce on collateral, make a going-concern sale of the business practically impossible.
Household Over-Indebtedness and Bankruptcy in Thailand
10. Bankruptcy of individuals is socially costly in Thailand. There is considerable stigma attached to bankruptcy. This explains why individual bankruptcy can only be requested by creditors and is used by them as the last resort to pressure debtors and obtain a payment. Only persons with debts of at least THB 2 million can be declared bankrupt.
11. Preventive policies to avoid bankruptcy are in place. Due to the serious consequences of bankruptcy, there are preventive measures that seek to restore the financial health of the debtor without undergoing a formal bankruptcy process.
12. The legal regime foresees an agreement as a last attempt to avoid the debtor’s bankruptcy. Before a debtor is declared bankrupt, there is a possibility of reaching an agreement with creditors consisting of a repayment plan. If the plan is approved by creditors and confirmed by the court, the debtor will avoid being declared bankrupt.
13. Bankruptcy has severe consequences for debtors. Debtors who are declared bankrupt are dispossessed of their assets, cannot access credit, and cannot enter into any transaction related to their assets or business except with the permission of the receiver, the court, or the creditors’ meeting. Most debtors’ salary is garnished, and debtors cannot leave the country without the permission of the receiver or the court. Debtors can still reach an agreement with creditors once bankruptcy has been declared.
14. Personal bankruptcy is designed as a mechanism to collect debts but is not particularly effective. As bankruptcy is only initiated at the creditors’ request, it is used as a debt collection mechanism, but is not particularly effective. Recoveries by creditors are low and the process tends to be protracted. The debtor’s assets are sold by auction. Debtors, on the other hand, receive a debt discharge three years after the declaration of bankruptcy, or before, if 50 percent of the debts are repaid. In this way, the regime is not effective in achieving the main function of a personal bankruptcy regime, namely, providing a fresh start for over-indebted individuals. Because the debt threshold required to commence bankruptcy is high, the most vulnerable debtors always remain outside the scope of the bankruptcy regime and cannot obtain a discharge.
The Institutional Framework in Thailand
15. Thailand benefits from having specialized bankruptcy courts. The Bankruptcy courts were established in 1999. Thailand is one of the few countries in the world that has specialized bankruptcy courts for both companies and individuals. As the Central Bankruptcy Court has jurisdiction over the whole country, it can become overloaded with cases. The pandemic has accelerated the modernization of the technological means of the court, including the use electronic communications in insolvency cases.
16. The regime of insolvency professionals is not fully developed. There is not a comprehensive regime for insolvency professionals. In bankruptcies, an official receiver is appointed by the Legal Execution Department. Private insolvency professionals serve as reorganization planners or plan administrators. These are limited roles within reorganization proceedings (preparing and implementing reorganization plans) for professionals duly qualified and registered.
17. The Legal Execution Department (LED) performs multiple roles in the insolvency regime. The Department is part of the Ministry of Justice. Its main role is to assist the courts in the enforcement of civil judgments. In addition, the LED appoints official receivers in bankruptcy and reorganization cases and carries the registry of reorganization planners. The LED has ramped up its use of technology in the conduct of its functions.
C. How to Strengthen the Thai’s Insolvency Regime?
18. Addressing the elevated levels of debt of enterprises and households requires a comprehensive strategy. The strategy must start with an analysis of the financial support measures currently in force and the plan for the withdrawal of such measures. Support programs for debtors can be considered, with proper design features to avoid moral hazard (Leuven and Laryea 2009).
19. Regarding enterprise debt, there should be a broader set of options for formal insolvency proceedings, particularly by SMEs. The corporate insolvency regime could benefit from the re-introduction of debt restructuring mechanisms, the streamlining of the liquidation regime, and the use hybrid restructuring (see Liu et al. 2020; Bauer et al. 2021). For SMEs, adoption of amendments to SME reorganization would improve the functionality of that procedure. The use of restructuring tools should be extended to SMEs, particularly the smaller ones, together with advice, mediation, and support programs (Japan, Korea and Malaysia can serve as useful models).
20. Addressing household over-indebtedness also requires reinforcing preventive measures. Since bankruptcy has severe social costs and does not generate significant benefits to creditors or debtors, efforts in promoting debt restructuring, such as the Debt Clinic, should be sustained. Reform of the bankruptcy regime needs to be implemented over the medium term, and this should include voluntary bankruptcy and lower debt thresholds.
21. On the institutional framework, the pressure on the courts could be relieved with a number of measures. Apart from the use of out-of-court and hybrid restructurings, other measures could relieve the workload of the courts, which should prioritize reorganizations (Diez et al, 2021). The courts should continue with the process of incorporating modern technology. The regime of insolvency administrators should be developed, and this would also allow the redeployment of other resources. The LED could take over most of the functions in personal bankruptcy to relieve the pressure on the courts (Jullamon 2012). Statistics should increase their coverage and detail to assess capacity and the effects of reforms (Garrido et al. 2019).
D. Private Debt Resolution: Key Principles
Principles for Corporate Debt Restructuring in Crises
22. Liu et al. (2020) and Araujo et al. (2022) distinguish three phases for a successful corporate debt restructuring. Phase 1 corresponds to the deployment of policy support to cushion the effect of the economic and financial crises on the economic activity and people. Phase 2 requires tackling large non-performing loans, defaults, and insolvencies. Finally, Phase 3 focuses on enforcing insolvency and debt contracts once policy support measures are phased out.
Freezing insolvency cases. During the first phase of the crisis, the authorities’ main objectives is to deploy support measures to limit the effect of the crisis. Therefore, they introduce regulatory flexibility, moratorium on debt enforcement, reduce and suspend insolvency system.
Transition phase: Once the economy starts recovering owing to policy support, authorities should build an effective insolvency and restructuring framework. Key actions include: (i) proceed to a triage of firms to separate those who are not viable to those who are viable but need to be restructured; (ii) use out-of-court to tackle the large numbers of restructuring cases with a special track for SMEs.
Restoring normal procedures: After both the economy and restructuring cases stabilize, countries should go back to standard resolution framework. Lenders bear the full losses of their exposures and firms clean up their balance sheets. Hybrid debt restructuring mechanisms can be maintained during this phase to accelerate the remaining restructuring cases.
These phases correspond to the treatment of a crisis. Under normal circumstances, corporate debt restructuring operates according to the international standard.7
Principles for Household Debt Restructuring in Crises
23. There is a case for government intervention in household debt restructurings during crises. Governments often get involved in private debt resolution during times of crisis such as the current pandemic when restructuring involves large numbers of bankruptcies. Two broad approaches can be used to restructure household debt. The first approach is a case-by-case restructuring in which the government establishes the legal and institutional framework. The second approach involves the establishment of a sponsored debt restructuring program. Government can provide financial support to households or to the banks. However, any government intervention should primarily aim to restore the sustainability of households’ balance sheets, minimize the cost for the budget and reduce the risk of bank failures. Key principles to achieve such objectives include (Leaven and Laryea 2009):
Objective and scope: The program should be targeted to households that are hit hard and struggling to meet their debt service obligations.
Proportionality: The scale of government intervention in the household debt restructuring should depend on its fiscal space and on the capacity of households and their creditors to absorb losses.
Participation: Creditors’ participation to the debt restructuring program should be voluntary.
Simplicity: Household’s debt restructuring involves many cases. Therefore, the design should be based on simple rules to speed up the restructuring and reduce the potential for abuse.
Transparency and accountability: The debt restructuring program should include mechanisms (e.g., reporting and audits) that allow the authorities to ensure the accountability of participants.
There is no international standard for household (personal) insolvency. But country experiences are useful for design of regimes that allow debtors to reduce their over-indebtedness and have a fresh start.
E. What Can Thailand Learn from Other Countries’ Experiences?
24. Many Asia-Pacific countries amended their insolvency regimes prior or during the pandemic to facilitate a smooth deleveraging and restructuring of corporate debt. A special track for SMEs combined with simplified and faster out-of-court restructuring mechanisms are a common trend.
Australia has revised its small business insolvency regime. The new regime includes new debt restructuring and simplified liquidation processes. Insolvent small firms have now 20 days to prepare a restructuring plan and creditors a maximum of 15 days to accept it or not after submission. The approval of the restructuring plan requires now only 50 percent of creditors’ votes. The liquidation process is much faster and less costly for small businesses.
India overhauled its insolvency regime prior to the pandemic. The new insolvency regime created a new regulator.8 The Central Bank of India oversees out-of-court restructuring mechanisms. During the pandemic, the authorities introduced a 12-month suspension of filling of new insolvency cases and simplified the small business insolvency regime with the aim to facilitate reorganization.
Despite having one of the most advanced insolvency frameworks (the Debtor Rehabilitation and Bankruptcy Act), Korea continued to strengthen its insolvency system including during the pandemic. Recent reforms include further simplifying the insolvency process for SMEs.
Malaysia created a new agency (the Credit Counseling and Debtor Management Agency ) to serve as a one-stop-shop for individuals and SMEs that request debt restructuring. Malaysia also refined the operational procedures for the Corporate Debt Restructuring Committee, the out-of-court mechanism that handles corporates.
Singapore, through the COVID Temporary Measures Act (2020), simplified insolvency and restructuring procedures for SMEs. The authorities also introduced a temporary Simplified Insolvency Program (SIP) to speed up at lower cost restructuring procedures. The SIP has two components. The Simplified Winding Up Program (SWUP) enables SMEs to go into bankruptcy through a simplified winding up procedure. This applies when the company is insolvent, intends to cease business and opt to be wound up. The Simplified Debt Restructuring Program (SDRP) enables SMEs to restructure their debt while keeping their businesses.
25. There have been so far less changes in household restructuring and insolvency procedures. However, experiences in the last two decades (IMF 2009) can provide useful references for situations of high household debt. The authorities should carefully monitor the levels of household debt, since over-indebtedness of households tends to have a much more negative effect than over-indebtedness of enterprises (see Jorda et al., 2020). The main goal of these programs was not only to restructure household debt to provide a temporary lifeline but also reduce the leverage of the most hit segments of the population.
A credit card debt crisis affected Korea in 2002. Card debt reached 15 percent of GDP because of weak lending standards. The restructuration process involved: (i) loan write-offs; (ii) debt-to-equity conversion of credit card issuers’ and (iii) roll over of delinquent credit card loans.
In 2005 a credit card debt crisis affected Taiwan Province of China with NPLs for cash cards peaking at about 8 percent in 2006 from 2 percent in 2005. To restructure the credit card debt, the authorities offered better repayment terms covering thirty percent of the outstanding credit card loan balances.
The sub-primes mortgage crisis increased the numbers of foreclosures from 2.7 million in the precrisis period (2003-06) to 7.8 million (2007-10) in the United States. The U.S. administration launched five programs (see Barr et al. 2020) to implement mortgage modification and refinancing. Prior to the failure of Lehman Brothers key element of the restructuring included: delay or limit interest payments; reduction of principal payments; write-downs of mortgage principal for eligible borrowers. Post Lehman, the loan-to-value ceiling was raised allowing hard hit borrowers to refinance their loans; further principal write-downs to address negative equity; and mortgage payments deferments to 12 months for unemployed persons.
In 2008, the United Kingdom launched a program to support homeowners affected by home foreclosures. Hard hit homeowners could defer a portion of their payments up to 2 years. In addition, borrowers with mortgage balances up to £400,000 and with savings lower than £16,000 were eligible to pay their principal only when their economic conditions improve. The U.K. Treasury guaranteed the differed interest payments for banks participating in the program.
Thailand: Financial Sector Support Measures to Mitigate the Impact of COVID-19
Thailand: Financial Sector Support Measures to Mitigate the Impact of COVID-19
| 2020 | 2021 | |
|---|---|---|
| Support measures for business | April-October 2020 Broad-based debt payment holiday schemes for SME borrowers. Credit line with each financial institution no more than 100 million baht if loan not yet classified as NPL as of 31 December 2019. BOT soft loan schemes of 500 billion baht for financial institutions to lend to SMEs with interest up to 2 percent per year. GSB soft loan guarantee schemes of 150 billion baht with a maximum of 2 percent interest per year. TCG’s credit guarantee schemes of 150 billion baht. August 2020 DR BIZ project to facilitate multi-creditor debt restructuring process October 2020 Targeted measure for SME with credit line with each financial institutions no more than 100 million baht after the broad-based debt payment holiday expired: • Enable financial institutions to freeze loan classification status for borrowers who are in the process of debt restructuring negotiation until the end of 2020. • Enable financial institutions to provide debt payment holiday schemes and freeze loan classification status for borrowers who are still severely affected and unable to clearly assess cash flows until the end of June 2021. BOT soft loan: Extending the application period, modifying eligibility criteria to cover listed firms in Market for Alternative Investment (MAI), additional TCG credit guarantee from year 3 onwards under the Soft Loan Plus project (of 57 billion baht). GSB soft loan: Targeting SMEs in business sectors which take longer-than-expected time to recover, such as tourism-related businesses, under the existing budget of GSB soft loan schemes. |
February 2021 The Cabinet approved a THB 50 billion soft loan program (available until June 30, 2021, through SFIs) to provide low-interest rate loans for up to 3 years to informal workers and SMEs linked to the tourism sector. April 2021 Two new measures designed to support and transform viable businesses for the post COVID-19 world. These measures include the special loan facility for business with credit guarantee scheme (totaling 250 billion baht) and debt restructuring through asset warehousing (totaling 100 billion baht) with buy-back options. June 2021 Targeted debt payment holiday schemes and freeze loan classification status. August 2021 Revise special loan measures to support SMEs affected by the COVID19 pandemic to provide accessibility for debtors with higher risk. October 2021 TCG’s credit guarantee schemes of 175 billion baht. |
| Support measures for households | February 2020 Debt Clinic extended to cover decided legal cases (pre-litigation). March 2020 Introducing broad-based minimum assistance to ease debt repayment burden for retail borrowers, such as reduction of minimum payment rate or conversion to term loan for credit card and personal loans. |
September 2021 Additional measures to support households affected by the C0VID-19 pandemic. The measures such as the reduction of minimum monthly repayment for credit card, increasing the credit limit on credit card and personal loans, the extension of credit limit and repayment period of digital personal loans and assisting debtors through long-term debt restructuring. |
| April 2020 Debt Exit Fastlane is an online platform developed in response to the COVID-19 pandemic. Retail and SME debtors in any status can submit a request for debt-related assistance, which will be sent to relevant lenders for consideration. Debtors |
Debt Clinic • Qualification adjustment is on-going to broaden the potential customer pool. At present NPLs before 1 April 2022 may apply. • The program is proposing scheme choices, among key improvement initiatives to attract more lenders and borrowers. Debt Exit Fastlane To improve assistance to borrowers, since January 2022, the online platform has also provided linkage to the Multi-creditor Facility for SMEs (previously DR BIZ), and Debt Doctor facility. Online Debt Mediation Events • In 2021 the BOT, in collaboration with some retail-debt lenders, launched 2 online debt mediation events to assist the borrowers affected by the COVID-19 pandemic. • Debtors were able to submit requests to their participating lenders via the BOT. • The restructuring schemes were pre-agreed in principle between the lenders and the BOT to ensure a level of minimum assistance. November 2021 Refining Debt consolidation schemes by expanding the scope of debt consolidation measures to enable debt consolidation across different financial institutions. |
|
| who previously received impractical repayment schemes may also re-apply. June 2020 Extending coverage and duration of support measures for borrowers still being affected by COVID-19 and offering a wide range of minimum debt relief measures for borrowers to choose, as well as increasing credit line ceiling for credit card and personal loans for borrowers having good credit record. August 2020 Debt consolidation schemes to support borrowers having multiple loans within the same financial institution. |
||
| Support measures for financial institutions | May 2020 The BoT reduced the rate of contribution from financial institutions to the FIDF to 0.23 percent of deposit base per annum from 0.46 percent until December 2022. Measures to sustain capital positions of financial institutions: (i) Commercial banks were asked to prepare capital management plan and assess their financial positions and performances under stress scenarios (stress test analysis) during 2020-22. (ii) Financial institutions are prohibited to pay dividend more than the dividend payout amount of year 2019 or 50 percent of year 2020 net profit. Premature repurchase of stocks and debentures countable as tier 1 or 2 regulatory capital are also forbidden. (iii) The BOT has eased the eligibility criteria for banks’ additional tier 1 and tier 2 regulatory capital to be on par with the international standards. November 2020 The BoT provides guideline for 2020 dividend payment by allowing financial institutions to pay dividends for the year 2020 performance not exceeding previous year payout ratio and 50 percent of net profit of 2020. |
October 2021 Temporarily easing of Loan-to-Value (LTV) regulations November 2021 The BoT relaxed the dividend payment policy for 2021 by unwinding the dividend payout limit (not exceeding the previous year payout rate). Financial institutions have been allowed to pay dividends for 2021 performance not exceeding 50 of the net profit of 2021. |
Thailand: Financial Sector Support Measures to Mitigate the Impact of COVID-19
| 2020 | 2021 | |
|---|---|---|
| Support measures for business | April-October 2020 Broad-based debt payment holiday schemes for SME borrowers. Credit line with each financial institution no more than 100 million baht if loan not yet classified as NPL as of 31 December 2019. BOT soft loan schemes of 500 billion baht for financial institutions to lend to SMEs with interest up to 2 percent per year. GSB soft loan guarantee schemes of 150 billion baht with a maximum of 2 percent interest per year. TCG’s credit guarantee schemes of 150 billion baht. August 2020 DR BIZ project to facilitate multi-creditor debt restructuring process October 2020 Targeted measure for SME with credit line with each financial institutions no more than 100 million baht after the broad-based debt payment holiday expired: • Enable financial institutions to freeze loan classification status for borrowers who are in the process of debt restructuring negotiation until the end of 2020. • Enable financial institutions to provide debt payment holiday schemes and freeze loan classification status for borrowers who are still severely affected and unable to clearly assess cash flows until the end of June 2021. BOT soft loan: Extending the application period, modifying eligibility criteria to cover listed firms in Market for Alternative Investment (MAI), additional TCG credit guarantee from year 3 onwards under the Soft Loan Plus project (of 57 billion baht). GSB soft loan: Targeting SMEs in business sectors which take longer-than-expected time to recover, such as tourism-related businesses, under the existing budget of GSB soft loan schemes. |
February 2021 The Cabinet approved a THB 50 billion soft loan program (available until June 30, 2021, through SFIs) to provide low-interest rate loans for up to 3 years to informal workers and SMEs linked to the tourism sector. April 2021 Two new measures designed to support and transform viable businesses for the post COVID-19 world. These measures include the special loan facility for business with credit guarantee scheme (totaling 250 billion baht) and debt restructuring through asset warehousing (totaling 100 billion baht) with buy-back options. June 2021 Targeted debt payment holiday schemes and freeze loan classification status. August 2021 Revise special loan measures to support SMEs affected by the COVID19 pandemic to provide accessibility for debtors with higher risk. October 2021 TCG’s credit guarantee schemes of 175 billion baht. |
| Support measures for households | February 2020 Debt Clinic extended to cover decided legal cases (pre-litigation). March 2020 Introducing broad-based minimum assistance to ease debt repayment burden for retail borrowers, such as reduction of minimum payment rate or conversion to term loan for credit card and personal loans. |
September 2021 Additional measures to support households affected by the C0VID-19 pandemic. The measures such as the reduction of minimum monthly repayment for credit card, increasing the credit limit on credit card and personal loans, the extension of credit limit and repayment period of digital personal loans and assisting debtors through long-term debt restructuring. |
| April 2020 Debt Exit Fastlane is an online platform developed in response to the COVID-19 pandemic. Retail and SME debtors in any status can submit a request for debt-related assistance, which will be sent to relevant lenders for consideration. Debtors |
Debt Clinic • Qualification adjustment is on-going to broaden the potential customer pool. At present NPLs before 1 April 2022 may apply. • The program is proposing scheme choices, among key improvement initiatives to attract more lenders and borrowers. Debt Exit Fastlane To improve assistance to borrowers, since January 2022, the online platform has also provided linkage to the Multi-creditor Facility for SMEs (previously DR BIZ), and Debt Doctor facility. Online Debt Mediation Events • In 2021 the BOT, in collaboration with some retail-debt lenders, launched 2 online debt mediation events to assist the borrowers affected by the COVID-19 pandemic. • Debtors were able to submit requests to their participating lenders via the BOT. • The restructuring schemes were pre-agreed in principle between the lenders and the BOT to ensure a level of minimum assistance. November 2021 Refining Debt consolidation schemes by expanding the scope of debt consolidation measures to enable debt consolidation across different financial institutions. |
|
| who previously received impractical repayment schemes may also re-apply. June 2020 Extending coverage and duration of support measures for borrowers still being affected by COVID-19 and offering a wide range of minimum debt relief measures for borrowers to choose, as well as increasing credit line ceiling for credit card and personal loans for borrowers having good credit record. August 2020 Debt consolidation schemes to support borrowers having multiple loans within the same financial institution. |
||
| Support measures for financial institutions | May 2020 The BoT reduced the rate of contribution from financial institutions to the FIDF to 0.23 percent of deposit base per annum from 0.46 percent until December 2022. Measures to sustain capital positions of financial institutions: (i) Commercial banks were asked to prepare capital management plan and assess their financial positions and performances under stress scenarios (stress test analysis) during 2020-22. (ii) Financial institutions are prohibited to pay dividend more than the dividend payout amount of year 2019 or 50 percent of year 2020 net profit. Premature repurchase of stocks and debentures countable as tier 1 or 2 regulatory capital are also forbidden. (iii) The BOT has eased the eligibility criteria for banks’ additional tier 1 and tier 2 regulatory capital to be on par with the international standards. November 2020 The BoT provides guideline for 2020 dividend payment by allowing financial institutions to pay dividends for the year 2020 performance not exceeding previous year payout ratio and 50 percent of net profit of 2020. |
October 2021 Temporarily easing of Loan-to-Value (LTV) regulations November 2021 The BoT relaxed the dividend payment policy for 2021 by unwinding the dividend payout limit (not exceeding the previous year payout rate). Financial institutions have been allowed to pay dividends for 2021 performance not exceeding 50 of the net profit of 2021. |
References
Araujo, J., Garrido, J., Kopp, E., Varghese, R., and Yao, W. (2022), “Policy Options for Supporting and Restructuring Firms Hit by the COVID-19 Crisis”, Departmental Paper No 2022/002.
Barr M., N. Kashkari, A. Lehnert and P. Swagel (2020), “Crisis-Era Housing Programs” in “First Responders” edited by B. Bernanke, T. Geithner, and H. Paulson, Yale University Press.
Bauer, A., Craig, C., Garrido, J., Kang, K., Kashiwase, K., Kim, S., Liu, Y., and Rafiq, S., 2021, “Flattening the Insolvency Curve: Promoting Corporate Restructuring in Asia and the Pacific in the Post-C19 Recovery,” IMF Working Paper 21/16, International Monetary Fund, Washington, DC.
Crosio, P. 2021, “New Rehabilitation Options for Small Businesses in Thailand”, available at https://silklegal.com/new-rehabilitation-options-for-small-businesses-in-thailand/
Díez, F., Duval, R., Fan, J., Garrido, J., Kalemli-Özcan, S., Maggi, C., Martinez-Peria, S. and Pierri, N., 2021, “Insolvency Prospects Among Small-and-Medium-Sized Enterprises: Assessment and Policy Options”, SDN 2021/002, Washington DC.
International Monetary Fund (2019), “Thailand: 2019 Article IV Consultation,“ IMF Country Report No. 19/309,Washington, DC.
International Monetary Fund (2022), “Chapter 2: Private Debt,” World Economic Outlook (WEO), Washington, DC.
Jullamon, K., 2012, Consumer Bankruptcy in Thailand, Urbana, Ill. (dissertation).
Jorda, O., Kornejew, M., Schularick, M., and Taylor, A. M. 2020. “Zombies at Large? Corporate Debt Overhang and the Macroeconomy”, National Bureau of Economic Research NBER Working Paper 28197.
Leaven L. and T. Laryea (2009), “Principles of Household Debt Restructuring,” International Monetary Fund Staff Position Note No. 09/15, Washington, DC.
Liu Y., Garrido J. and DeLong C. (2020), “Private Debt Resolution Measures in the Wake of the Pandemic,” International Monetary Fund, Legal Department, Special Series on COVID-19.
Prepared by Jose Garrido (LEG) and Mouhamadou Sy (APD).
Relief measures are credit assistance measures to support borrowers affected by COVID-19. They include, for example, debt repayment deferment, interest rate or principal reduction, debt restructuring with new financing, etc. The measures only target performing loans.
Mortgages (36 percent) and personal loans (53 percent) are the major components of households’ loans that are under relief measures as of 2022Q1.
Even if the economic situation does not deteriorate, scarring from the pandemic could affect the financial situation of firms and households. See ’’Appendix III. Analysis of Broader Economic Scarring for Emerging Markets with Policy Options’’ in IMF Country Report No. 21/97 for an analysis of scarring effect of COVID-19 pandemic for emerging markets.
The Bank of Thailand recently set up the DR BIZ program to facilitate multi-creditor debt restructuring process.
The only requirement would be that the enterprise qualifies as SME under the Ministerial Regulations of 2019. The classification is done according to the number of workers and the value of capital assets set for manufacturing, wholesale and retail traders, and service businesses.
World Bank Principles for Effective Insolvency Regimes and the United Commission on International Trade Law (UNCITRAL) recommendations from the Legislative Guide on Insolvency Law.
The Insolvency and Bankruptcy Board of India (IBBI)
