A recent study by Deloitte Consulting Co., Ltd. (Deloitte) highlights opportunities for effectively addressing non-performing loans, emphasizing tax measures and relaxing investment restrictions to attract institutional investors from new sectors, such as insurance companies and social security funds, as well as fund management companies like Private Equity Firms and Hedge Funds to participate in managing the rising non-performing loans.

The study found that Thailand has developed strict strategies and approaches for managing non-performing loans since 1997 to cope with the financial crisis. However, new strategies and capabilities for managing non-performing loans have not significantly evolved over the past three decades, and today, Thailand is facing an increasing problem of non-performing loans once again.

Dr. Methinee Chongsaridwong, Managing Director of Deloitte Consulting Co., Ltd. stated, “The key approach to addressing non-performing loans in Thailand, based on international case studies, indicates that having a clear regulatory framework and attractive business measures, such as tax incentives, is essential to attract a diverse and broader range of institutional investors or distressed debt managers, such as Private Equity fund managers, Hedge Funds, and General Partners (GPs), etc. These investors can bring knowledge and expertise in debt restructuring and business recovery to Thailand's capital market to provide financially distressed companies with comprehensive debt management options, such as opportunities to collaborate with institutional investors or distressed debt managers for business recovery from bankruptcy. Additionally, it promotes the exchange of knowledge and best practices for local personnel.”

Compared to leading markets abroad, such as the United States, the principles of debt restructuring and business recovery are foundational elements ingrained in their capital market ecosystem. Companies in the U.S. have opportunities to work with investor groups to give their companies a second chance. We often do not see such scenarios with companies in Thailand due to limitations in recovery capabilities.

Kenneth Tay, Partner at Deloitte Consulting Co., Ltd. said, “The study also examines ways to enhance market liquidity by reviewing regulations and considering relaxing investment restrictions for various types of institutional investors, such as insurance companies, social security funds, pension funds, and/or family offices, to address the increasing non-performing loan problem. This is also a key factor in driving the Thai economy; however, it must remain under appropriate regulation.”

“The current non-performing loan market in Thailand is centered around Asset Management Companies. In a strong and sustainable ecosystem, we need diverse players to participate in the capital market to facilitate the price discovery process of low-quality assets, enhance the capacity to manage increasing debt, and continuously innovate in debt resolution,” Nilapa Buchasook, Senior Manager at Deloitte Consulting Co., Ltd. stated.

“We are well aware that the volume of non-performing loans in Thailand is continuously expanding. If we want to manage these debts appropriately, we must modernize our ecosystem, attract sufficient investment, and draw in talented financial personnel to effectively handle potential future financial crises,” Dr. Methinee stated.

Read the full report at The future of distressed debt in Thai capital markets | Deloitte SEA | Consulting | Perspectives