BOT announced measures to stabilize the corporate bond market and to assist small and medium enterprises affected by the COVID-19 pandemic. These measures are in the form of a six-month loan payment holiday, soft loans, market liquidity enhancement to stabilize the corporate bond market, and reduction in the Financial Institutions Development Fund (FIDF) fee, with an intention to pass on such savings to ease the loan interest burdens on businesses and households. BOT also announced relief measures for debtors, which include credit assistance measures and revisions to rules on loan classification and provisioning. Finally, BOT, along with a couple of industry associations, announced that all member banks and financial institutions have prepared business continuity plans to enable customers to continue to utilize various important services.
The Cabinet has approved the two Draft Emergency Decrees: one on financial assistance to small and medium-size enterprises affected by the pandemic and the other on provision of liquidity support to stabilize the corporate bond market. These two decrees authorize the BOT to manage liquidity and direct funds to the affected target groups. The decrees also put in place a mechanism that allows the government to indemnify for losses that may arise in the future in connection with these measures. The following are the key highlights of the announced measures:
- Loan payment holiday for SMEs. SMEs with a line of credit with a commercial bank or a specialized financial institution not exceeding THB 100 million baht are automatically eligible to pause payments of both principal and interest for six months. This payment holiday will not be considered as a missed payment and thus will not impair credit history. During this period, BOT expects financial institutions will work closely with the borrowers to restructure their debts. BOT advises that the SMEs that are in a position to continue servicing the loans should repay their debts as normal. In addition, to further encourage financial institutions to provide liquidity to borrowers, the BOT has temporarily relaxed liquidity-related regulations.
- Soft loans to support liquidity. BOT will provide soft loans of THB 500 billion at 0.01% interest rate per annum to financial institutions for two years. Financial institutions will then on-lend to SMEs at a concessional rate of 2% per annum. SMEs that are eligible for this measure must be operating domestically, be not listed in the Stock Exchange of Thailand or the Market for Alternative Investment (MAI), have a credit line with a financial institution not exceeding THB 500 million, and still have a performing loan with normal repayment status or arrears of less than 90 days, as of December 31, 2019. The maximum draw down for the soft loan is 20% of the loan outstanding as of end-December 2019. Interested SMEs can apply for soft loans at their banks.
- Market liquidity enhancement to stabilize the corporate bond market. BOT and the Ministry of Finance are establishing the Corporate Bond Stabilization Fund (BSF) to provide bridge financing to high-quality firms with bonds maturing during 2020-2021, at higher-than-market "penalty" rates. Eligible corporate bonds or issuers must meet a number of criteria; they must be at least an investment grade, have raised the majority of their funding needs through other means such as bank loans or capital increase, have a clear long-term financing plan, and meet other conditions as set out by the investment committee of BSF. In addition, if the issuers simultaneously offer secured bonds to the general public, the bonds that the BSF will invest in must also be secured with collateral no inferior than that pledged on the bonds sold to the general public.
- Reduction in FIDF fee to ease the loan interest burden of businesses and households. BOT will halve the rate of contribution from financial institutions to the FIDF from 0.46% of deposit base to 0.23% annually for the period of two years. This is intended for financial institutions to immediately pass on such cost savings to businesses and households by further reducing their loan rates. FIDF was established to provide financial assistance to troubled financial institutions and, by injecting funds into a number financial institutions in difficulties, the FIDF ended up holding stakes in several financial institutions, asset management companies, and eventually managed assets and collected debt from bailing out financial institutions.
- Press Release on Measures to Assist SMEs
- Press Release on Measures to Stabilize Financial Markets
- Press Release on Relief Measures for Debtors (in Thai)
- Press Release on Credit Assistance Measures (in Thai)
- Press Release on Business Continuity Plans
- FIDF Overview
Keywords: Asia Pacific, Thailand, Banking, SME, COVID-19, Liquidity Risk, Corporate Bond Market, Credit Risk, Loan Moratorium, BOT
Leading economist; commercial real estate; performance forecasting, econometric infrastructure; data modeling; credit risk modeling; portfolio assessment; custom commercial real estate analysis; thought leader.
Previous ArticleSRB Chair Outlines MREL Expectations from Banks Amid COVID Crisis
The UK authorities have published consultations with respect to the Basel requirements for banks. The Prudential Regulation Authority (PRA) published the consultation paper CP16/22 on rules for the implementation of Basel 3.1 standards.
The three European Supervisory Authorities (ESAs) issued a letter to inform about delay in the Sustainable Finance Disclosure Regulation (SFDR) mandate, along with a Call for Evidence on greenwashing practices.
The Financial Stability Board (FSB) and the Network for Greening the Financial System (NGFS) published a joint report that outlines the initial findings from climate scenario analyses undertaken by financial authorities to assess climate-related financial risks.
The Financial Stability Board (FSB) published a letter intended for the G20 leaders, highlighting the work that it will undertake under the Indian G20 Presidency in 2023 to strengthen resilience of the financial system.
The International Sustainability Standards Board (ISSB) of the IFRS Foundations made several announcements at COP27 and with respect to its work on the sustainability standards.
The International Organization for Securities Commissions (IOSCO), at COP27, outlined the regulatory priorities for sustainability disclosures, mitigation of greenwashing, and promotion of integrity in carbon markets.
The European Banking Authority (EBA) issued a statement in the context of COP27, clarified the operationalization of intermediate EU parent undertakings (IPUs) of third-country groups
The European Union has finalized and published, in the Official Journal of the European Union, a set of 13 Delegated and Implementing Regulations applicable to the European crowdfunding service providers.
The Office of the Superintendent of Financial Institutions (OSFI) published an annual report on its activities, a report on forward-looking work.
The Australian Prudential Regulation Authority (APRA) finalized amendments to the capital framework, announced a review of the prudential framework for groups.