Measures to support SMEs affected by COVID-19.
As the worldwide pandemic continues to affect businesses by placing employers and employees under enormous financial pressure, the Thai government’s economic response has been adequate and deserves praise. On 7 April 2020 the Bank of Thailand in cooperation with the Ministry of Finance in an attempt to provide sufficient funding and liquidity to domestic businesses announced measures to support small and medium-sized enterprises (SMEs). The government’s hope is that through these measures more and more SMEs will retain their workforce.
The package consists of four measures.
#1: Repayment holiday for 6 months
SMEs with a line of credit not exceeding 100 million baht are automatically eligible to halt payments of both principal and interest for 6 months. A repayment holiday is exactly as the name suggests, a break from your usual debt repayments for a set period of time. This repayment break will not be considered a missed payment and thus will not affect your credit history.
The idea behind this measure is to provide SMEs with a financial relief and thus free more cash to support their businesses and continue to pay wages without laying off employees.
#2: Soft loans to financial institutions and SMEs
A soft loan is usually a loan provided on highly favourable terms. The Bank of Thailand has declared to provide financial institutions with soft loans worth 500 billion baht with a 0.01% interest rate p.a. for the overall duration of two years. On its turn, these financial institutions will then lend to SMEs at a rate of 2% p.a. SMEs that are eligible for this measure must:
- Operate in Thailand
- Are not listed in the Stock Exchange of Thailand or the Market for Alternative Investment (MAI)
- Have a credit line which does not exceed 500 million baht
- Have a performing loan with normal repayment status or arrears of less than 90 days (non-NPL) as of 31 December 2019.
During the first two years, financial institutions will charge an interest rate of 2% p.a. While during the first six months, the government will bear the interest burden resulting in no interest costs for SMEs.
#3: Enhancement of market liquidity
During periods of heightened economic uncertainty investors seek refuge in cash or cash-like assets resulting in major sell-offs of debt securities. As a consequence, liquidity condition in the corporate bond market tightens.
In order to stabilise the corporate bond market, the Bank of Thailand and the Ministry of Finance established the Corporate Bond Stabilisation Fund (BSF) to provide bridge financing to high-quality firms with bonds maturing during 2020-2021.
Eligible corporate bonds issuers must meet the following criteria:
- 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 additional criteria set out by the BSF investment committee.
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 collaterals no inferior than those pledged on the bonds sold to the general public.
#4: Reducing the Financial Institutions Development Fund (FIDF) fee
The Bank of Thailand announced its reduction of the financial institutions’ FIDF fee from 0.46% to 0.23% p.a. for a period of two years. This measure is intended to immediately affect businesses and households by further reducing their loan rates.