Banks to lessen impact of law on guarantors

Tawatchai Yongkittikul, TBA secretary-general, said commercial banks were ready to follow the amended law after discussion on any impact that may arise. The Act on the Civil and Commercial Code (Amendment No 20), BE 2557, which aims to create fairness for guarantors, will take effect in February.

"After the discussion, the association will not give its assessment of the impacts to the central bank, but will instead urge each commercial bank to study the legalities, attempt to lessen any impacts that may arise and take more precautions when extending loans," he said.

The TBA expects widespread impacts ranging from the public sector to retail borrowers.

Public agencies may take higher risks if commercial banks are not guarantors for private companies that are hired for state projects. Small and medium-sized enterprises may not request loans as required and a number of retail customers may turn to underground borrowing, and that could lead to problems in the long term.

"SMEs, which may find difficulty in borrowing, may join forces with others to ask for joint loans or raise collateral. However, state and commercial banks may have to rush to explain the details of this law to the people," Tawatchai said.

Responding to concerns over whether this law will be amended again, he said this depended on the state, which is now aware of the legal impacts on several sectors.

Vallobh Tejapaibul, president of the Thai Credit Guarantee Corporation (TCG), said: "There could be a small risk to the corporation. But we are concerned about SMEs, as we believe commercial banks will become more stringent in extending loans. Commercial banks may propose a [further] legal amendment, but it won’t be easy."

The TCG will hold discussions with all commercial banks on using its guarantee services for SMEs, while reviewing conditions to shorten procedures.