Thailand Plans ‘Pawn Shop’ Style Rescue for Hotels Hit by Covid

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Thailand is finalizing a rescue plan for tourism-related businesses near collapse from the pandemic that would improve their access to credit from banks wary of further bad loans.

The Finance Ministry, Bank of Thailand and commercial banks are working on a plan allowing cash-poor companies to temporarily park their assets with lenders in exchange for credit, and reclaim them within a specified period. The aim is to keep small businesses such as hotel operators from having to liquidate distressed assets at firesale prices or go out of business because of their debts.

The issue is especially critical for small and medium-sized operators in the tourism industry, which normally accounts for about 20% of the Thai economy but has been decimated by border closures and travel restrictions. With foreign arrivals this year expected at less than 10% of the 40 million tourists registered pre-pandemic, hotel operators have suffered unprecedented losses.

With interest rates at or near record lows and trillions of dollars in fiscal stimulus already deployed, central banks around the world have had to get more creative to bolster ailing economies. The experiment in Thailand is the latest innovation in monetary policy, after efforts such as the Federal Reserve’s main-street lending program and Israel’s special lending rates for banks that extend credit to small businesses.

Thailand’s program is “very unique and effectively operates a bit like a pawn shop, where you place valuables in exchange for immediate cash,” said Khoon Goh, Singapore-based head of Asia research at Australia & New Zealand Banking Group Ltd. “I have not come across any other country coming up with something like that.”

Thailand Plans ‘Pawn Shop’ Style Rescue for Hotels Hit by Covid

The new program, called asset warehousing, would allow debtors to use their hotels to settle defaulted loan obligations, according to the central bank and the Thai Bankers’ Association. The hotel owners can then lease back the assets to operate, or buy back the assets within five years at an agreed price while the banks operate them in the meantime.

“There’s a need for urgent and comprehensive measures to help small tourism-related businesses go through this difficult time,” said Kobsak Duangdee, secretary general of the Thai Bankers’ Association. “The pandemic has lasted much longer than we expected.”

The new program comes as the Bank of Thailand has struggled to channel assistance to small and medium enterprises during the pandemic. Only about 130 billion baht ($4.3 billion) out of 500 billion baht the central bank earmarked to help SMEs since last year has actually been delivered, as commercial banks are hesitant to lend with the central bank capping interest charges at 2% and SMEs showing a high risk of default.

The asset warehouse could launch in about two months, after remaining details are ironed out.

“The sensitive issues will be what price they’ll use for the transfer and the buy back,” said Naris Sathapholdeja, an economist at TMB Bank Pcl in Bangkok.

How the program would work:

  • Tourism operator places their hotel in the asset warehouse
  • Government offers a low-interest loan for the bank to run the asset, while debt payments are suspended; OR
  • Owner leases the asset back from the bank and continues to run it, using a low-interest government loan for operating costs
  • Within five years, the hotel owner can buy the asset back from the bank for a specified price

According to Naris, small and medium-sized hotel operators had 252.4 billion baht in outstanding loans at the end of 2020, with almost 7% classified as non-performing and another 13.5% considered a high credit risk. Even after foreign tourists begin trickling back, those hotels will continue losing money for some time, he said.

“Most hotels in key tourist destinations, such as Phuket and Samui, have been hit hardest, with some 80% of those hotels remaining closed since the first lockdown last year,” Marisa Sukosol Nunbhakdi, president of the Thai Hotel Association, told Bloomberg Television on Tuesday. Tourism-related businesses have dismissed about half their staff since the pandemic began, she said.

Cheap Loans

Owners can halt debt payments until they reclaim their warehoused assets, with the government providing low-interest loans for the banks or hotel owners to operate them in the meantime.

Siam Commercial Bank Pcl, Thailand’s biggest commercial lender, says about 90% of the 80 billion baht in loans it has made to hotel operators can’t be repaid. The bank, which already has a team that works with hotel owners on debt-relief plans, is awaiting details of the warehousing program before deciding whether to join, according to Sarut Ruttanaporn, Siam Commercial’s co-president.

“Any new measures that can help cope with those hotel debtors, who are hit very hard, would be beneficial for the entire banking system,” he said.

©2021 Bloomberg L.P.

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