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.”

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.

Read the full article at Bloomberg Quint:

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