Guidelines for Relief Measures for Debtors Affected by the COVID-19 Pandemic

By Parisa Leesakul, Accounting Manager, RSM Accounting Thailand

Objective

On August 20, 2021, the Bank of Thailand (BOT) issued additional guidelines to enhance the support given to debtors affected by the COVID-19 outbreak so that such support system would be more effective and sustainable amid the prolonged pandemic situation. These additional guidelines, effective as of September 3, 2021, include measures designed to maintain and provide new liquidity to debtors and enhance the existing debt restructuring facilities to be more sustainable.

Guidelines Design

These guidelines were specifically designed for financial institutions to launch the payment stream to match the deteriorated revenues of debtors and then gradually increase the repayments when the debtors’ revenues recover and provide support to a large number of debtors in a prompt manner.

The 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. As the COVID-19 situation is getting more serious, the economy tends to grow at a slower rate than previously expected, causing debtors to take a longer time to recover. It is estimated by the Thai Government that affected debtors will start to recover at the beginning of 2024 though RSM Accounting Service Thailand is somewhat more positive in its outlook.

Guidelines

The guidelines are categorized into five (5) key sections as summarized below:

  1. Focus on debt restructure regardless of adjustment of debt period.
    1. Implementation of Haircut Principal or accrued interest income.
    2. Reduction of interest rate in accordance with the agreement or adjustment of repayment conditions that create benefits to the debtors.
    3. Acceptance of debt repayment using assets.
    4. Acceptance of conversion of debt to equity or convertible debt instruments.
    5. Adjustment of debt period from short-term to long-term together with introduction of other measures to reduce debtors’ burden.
    6. Debt restructuring and providing new money.
  2. Focus on debt restructure by adjustment of debt period.
    1. Extension of repayment period.
    2. Providing grace period for both principal amount and interest.
    3. Adjustment of debt period from short-term to long-term.
  3. Reservation of unused credit line will not be required.
  4. Maintenance at level of small and SMEs debtors that are under debt restructure.
  5. Disclosure of information and implementation of relevant measures.

 

​​Accounting Perspectives

In accordance with the BOT Announcement regarding Sustainable Debt Settlement Measures, these guidelines can be alternatives to all business sectors including but not limited to credit card businesses; car for cash businesses; personal loan under the supervision of BOT; as well as other businesses beyond the scope of the supervision of BOT e.g. leasing businesses; hire purchase businesses; and more.

These guidelines should also facilitate debtors between the period of January 1, 2022 and December 31, 2023 or until the BOT has canceled or revised the guidelines. In the event that the restructuring was made between January 1, 2017 and December 31, 2021, the abovementioned guidelines can also be implemented from January 1, 2022 going forward.

Injunctive Relief by the Federation of Accounting Professions (FAP)

Similar to the guidelines provided by the BOT, the Federation of Accounting Professions has also issued an Announcement No. 37/2021 regarding Accounting Practices in relation to Guidelines for Relief Measures for Debtors Affected by COVID-19 Pandemic.

The practices are categorized into five (5) key sections as summarized below:

  1. Debt restructure regardless of adjustment of debt period.
    1. Non – NPL debtors: are to be categorized as Level 1 debtors in consideration with the payable status of the debtors.
    2. NPL debtors: are to be categorized as Level 1 debtors in the event that the repayment has been made consecutively for 3 months/installments.
    3. Granting new money: is to be categorized as Level 1 debtors in consideration with the payable status of the debtors.
    4. Debtors that are not able to meet due payment within 30 days/1 month: are to be categorized as Level 2.
    5. Calculation of Effective Interest Rate (EIR).
  2. Debt restructure by adjustment of debt period.
    1. Consideration of category level and preparation of reserve funds in accordance with standards.
    2. Consideration of Level 2 debtors to be categorized in accordance with BOT’s Significant Increase in Credit Risk (SICR).
  3. Calculation of unused credit line will not be required.
  4. Small and SMEs debtors that are under debt restructure but unable to finish debt restructuring within December 31, 2021 can remain at the same debtors’ level by March 31, 2022 or until further change to the practices.
  5. SFIs that provide relief measures to debtors that meet the above criteria are required to disclose information regarding alternative measures in accordance with related Circular of the BOT under the annex of the financial statements and to follow risk management practice and the impact on ECL valuation, which must comply with all other practices.

These practices should provide strong relief for debtors from small to medium sizes that are suddenly facing a difficult financial situation as a result of the unexpected disruption caused by the outbreak. In addition, both BOT and FAP are expected to provide additional measures/practices if and when the situation escalates.

Should you wish to discuss this article or require any information regarding to RSM Thailand’s accounting, payroll or taxation service, please do not hesitate to contact RSM Accounting Service Bangkok on [email protected]

Sources:

  1. Bank of Thailand: Article of Thai Banker’s Association Dated September 3, 2021
  2. Federation of Accounting Professions: Announcement No. 37/2021