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Govt okays state bank payment moratorium

Millions of borrowers are set to benefit from the government's latest populist policy, as the cabinet yesterday approved a moratorium for payments on small debts to state banks.

The 45 billion baht debt suspension would apply to more than 3.75 million small borrowers from four state banks, Deputy Prime Minister and Finance Minister Kittiratt Na-Ranong said.

The cabinet on Tuesday approved the scheme for debtors with performing loans owed to the Government Savings Bank, the Bank for Agriculture and Agricultural Cooperatives, the Small and Medium Enterprise Development Bank of Thailand (SME Bank), and the Islamic Bank of Thailand.

The scheme, starting on Sept 1 and lasting until Aug 31, 2015, will cost the state about 45 billion baht, Mr Kittiratt said. Half of the cost would be shouldered by state budget and the remainder by the banks.

Those eligible for the moratorium must be good borrowers with debts of no more than 500,000 baht and must have taken their loans out before yesterday. Registration for the scheme opens on May 2 and closes on Aug 20.

Mortgages, hire-purchase and leasing loans are not eligible, and debtors who have already received special interest rate reductions will be exempt.

About 3.75 million people with outstanding debts to state banks totalling about 459 billion baht could benefit from the moratorium, Mr Kittiratt said.

Participants will be offered two options. Under the first option, principal payments will be suspended for three years, with interest rates reduced by 3% per year. The second choice is for debtors to continue to repay the principal and for the interest rates to be reduced by 3% per year.

They will also be eligible for new loans at normal interest rates.

Mr Kittiratt said the debt relief programme will help stimulate economic growth by 0.4-0.7%, or 44 billion to 77 billion baht, annually.

The Pheu Thai Party-led government earlier ran a debt moratorium for non-performing debtors. About 661,000 people participated.

Opposition Democrat Party deputy leader Korn Chatikavanij yesterday criticised the policy as unfair to debtors of private banks or new state bank clients.

"It needs to be questioned if it is the government's duty to provide 'free' loans and to subsidise this policy with the people's taxes," he said.

Mr Korn said he expected the government would extend the moratorium ahead of the next general election in a bid to court voters.

"Why doesn't the government help people who can't access bank loans in the first place and have to turn to illegal loan sharks?" he said.

The cabinet yesterday also approved a 7.32 billion baht budget to provide loans via SME Bank to help cushion the impact on small- to medium-sized businesses from the minimum wage hike.

The maximum loan amount for each entrepreneur is 5 million baht, covering a repayment period of five to seven years with a special lending rate of MLR-3% for the first two years, and the MLR for the following years. The loan programme will be available for two years.

The government will also subsidise surcharges worth 2.22 billion baht on 24 billion baht worth of credit guarantees to be extended to the SMEs by the Thai Credit Guarantee Corporation.

Each SME will be entitled to 40 million baht of credit guarantee and the surcharge for the five-year period is 1.75%, Mr Kittiratt said. Applications for the programme will be accepted until the end of this year.

The cabinet also approved the SMEs to use 1.5 times their extra expense from the new 300-baht daily wage for their income tax deductions.

The replacement of old machinery by SMEs will be exempted from tax, and the depreciation costs of new machinery will also be tax-free this calendar year.

The cabinet yesterday also extended the reduction of the excise tax on diesel for another month, to May, at a cost of 9 billion baht.