Bank of Thailand Increases SME Debt Restructuring Options

Debt restructuring plays a key role in assisting small and medium-sized enterprises (SMEs) tide over difficulties amidst the Covid-19 pandemic. To this end, the central bank has increased debt restructuring measures for entrepreneurs as the impact of the latest wave of Covid-19 infections worsens. In applying these measures, the focus will be on the borrower’s debt repayment ability and business feasibility, rather than the debt moratorium.

The Bank of Thailand (BOT) has extended the end of the debt moratorium term for SMEs from 30 June 2021 to the end of 2021.

Additionally, the BOT has eased the non-performing loan (NPL) classification for SME debt restructuring until 31 Dec 2021. This is intended to contain NPLs in the banking system as bad debt increases amidst the current economic situation, which has caused considerable difficulties for SMEs. To assist SMEs with debt restructuring, the central bank continues to maintain relaxed NPL classifications as well as loan-loss reserve regulations for financial institutions.

Who may benefit?

1.   Debt restructuring

The debt restructuring measures are available to SMEs which have suffered from the economic impacts of the third wave of Covid-19 infections in Thailand, and this includes SMEs which have ceased business operations.

Further, the BOT allows financial institutions to adopt their own definition for SMEs when providing them with debt restructuring. This is predicted to result in more SMEs being eligible for such assistance. Previously, the BOT only provided financial aid to SMEs with credit lines which did not exceed THB 100 million.

2.   Extended debt moratorium term

The extended debt moratorium term is available to SMEs on a case-by-case basis, depending on the creditor’s consideration.

3.   Eased non-performing loan classifications

The eased NPL classification and loan-loss reserve regulations are meant to benefit financial institutions which provide additional financial assistance to SMEs, apart from the debt moratorium. More specifically, such additional financial assistance includes a decrease of principal and interest payments, interest rate reduction, as well as changing borrowers’ debt from short-term to long-term loans. This additional financial assistance should be subject to the SME’s debt repayment ability and cash flow.

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