(a) Where the commercial bank has made concessions to the debtor by reducing the principle or accrued interest, or has accepted the transfer of assets or financial instruments, or the conversion of the borrower's debt into equity (debt-equity swaps), the commercial bank shall write-off the debtor's account, record losses and make a reverse entry for the portion exceeding the required provisions specifically reserved for that debtor. (b) Where the commercial bank has made concessions to the debtor in debt repayment, without reducing the principal or accrued interest prior to debt restructuring, which as a result, the expected cashflow of the restructured debt as calculated in accordance with the rules of debt restructuring of financial institution prescribed by the Bank of Thailand, are lower than the original book value of debt including the accrued interest recorded in the debtor's account prior to debt restructuring, the commercial bank shall make such full required provisions for any losses incurred. In cases where the commercial bank has made provisions over and above the required provisions prior to debt restructuring, the commercial bank may make a reverse entry on the exceeding portions. However, where provisions made are below the provisions required to cover losses, the commercial bank must make additional provisions to cover losses. (c) Where the commercial bank has granted the debtor reductions in the outstanding principal or accrued interest amount, or has accepted partial payment via the transfer of assets, financial instruments, or debt-to-equity swaps and has made concessions on the remaining balance of the debt, the commercial bank shall comply with (a) for concession involving the reductions of the outstanding principal or interest amounts, or involving debt repayment, and comply with (b) where the concession involves conditions in debt repayment. (2) In monitoring the debtor's compliance with the terms of the debt restructuring agreement, during which time the debtor is required to make debt repayments for a period of three consecutive months or instalments whichever is longer, the commercial bank shall comply as follows . (a) Debtors originally classified as Doubtful of Loss or Doubtful shall be re-classified as Substandard. (b) Debtors originally classified as Substandard or Special Mention shall retain the same classification. The commercial bank shall then make the required provisions based on the above classifications following debt restructuring in cases where the required provisions in (2) based on debt classifications is greater than required provisions for losses from restructuring outlined in (1) (b) and (c). Debtors who have successfully complied with the terms of the debt restructuring contract and make debt repayments in accordance with the contract for at least a period of three consecutive months or instalments shall be reclassified as Pass. In cases where the debtor is unable to abide by the conditions of the restructuring contract, the commercial bank shall add up the time overdue under the restructuring contract and under the original contract together, then reclassify the debtor accordingly, and make the appropriate provisions following the rules detailed in this Notification. (3) In cases where the debtors have their debts restructured in accordance with the Bank of Thailand's rules of debt restructuring, and where the debtor meets with any one of the following criteria, the commercial bank may immediately reclassify the debtor as Pass without awaiting the outcome regarding whether the conditions of the restructuring contract has been fulfilled. (a) The debtor is able to pay interest without grace period on interest repayment at a rate no less than the market interest rate. Grace period on repayment of principal would still be allowed. (b) The debtor has incurred at least a 20% loss from the book value of the loan prior to debt restructuring, where this loss has been written off or fully provisioned for. Further, with regards to the remaining debt, analyses of the debtor's business, financial status, and cash flows have been performed in accordance with best practices, reasonableness, and with evidence of the likelihood that the debtor shall be able to honour the debt restructuring contract. (c) The debtor with debt in the form of loan syndication or a debtor with more than one creditor whose creditors are in consensus to have their loans restructured as a whole, where the debtor is able to provide evidence of analyses of the debtor's business and financial status including a cash flow analysis carried out with best practices, reasonableness, and with the likelihood that the debtor shall be able to honour the debt restructuring contract. (d) The commercial bank has filed a lawsuit against the debtor and a contract of compromise endorsed by the court has been settled, or the commercial bank has filed a bankruptcy lawsuit against the debtor and the court has approved the debtor's requestfor debt restructuring or the court has approved a rehabilitation plan. (4) In cases where the commercial bank has completed debt restructuring with approval from the Bank of Thailand or the Corporate Debt Restructuring Advisory Committee, the commercial bank shall immediately reclassify these debts as Pass without awaiting the outcome regarding whether the conditions of the restructuring contract has been (5) In case of apparent irregularities, the Bank of Thailand may order a rectification or order the commercial bank to employ an independent expert to evaluate or review the debt restructuring or order the reclassification and provisioning for individual debtor on a case-by-case basis. 4.12 Except for assets classified as Doubtful of Loss under 4.4.1 (3), (4), and (6), the commercial bank shall calculate the minimum required provisions for all asset classifications by first deducting the fair market value of the collateral which has been valued/appraised in accordance to the Bank of Thailand regulations on collateral valuation and appraisal, from the book value of the debt. The commercial bank may select any account of the debtor to be deducted first. However, the value of the collateral deducted may not exceed the credit line stated in either the pledge agreement, the mortgage contract, or the collateral contract as follows. (1) Collateral in form of cash deposit in that commercial bank is deductible by 100% of its value; (2) Collateral in the form of document of guarantee issued by domestic or foreign commercial bank - Standby Letter of Credit (SBLC) is deductible by 100% of the credit line stated in the SBLC; Letter of Guarantee (LG) is deductible by 95% of the credit line stated in the LG. (3) Near-cash collateral such as marketable securities are deductible by no more than 95% of its market value. (4) Other collateral than (1), (2), and (3) are deductible by no more than 90% of their valuation or appraised value. (5) For any classified debtor for whom the Ministry of Finance is a guarantor, or for whom the Government has set aside its budget for debt repayment, or for whom there is evidence of certain repayment from a government bureau, the amount of the debtor's loan covered by such a guarantee or repayment shall be deducted from the book value of the debtor when calculating required provisions. The commercial bank may calculate the minimum required provisions for assets classified as Special Mention under 4.7, or assets classified as Pass under 4.8, by deducting the market value of the collateral from the book value of the debt. Where the commercial bank chooses to deduct the collateral value from the book value of the debt prior to making provisions, the deductible collateral values are as set out in (1) to (5) 4.13 Any debtor classified as Doubtful for which provision has been fully made and the commercial bank has written off the debtor in accordance with the Notification of the Bank of Thailand Re: Prescription for Commercial Banks in Writing off Debts dated 21 September 1999 and the Notification of the Bank of Thailand Re: Worthless or Irrecoverable Assets and Doubtful Assets that may be Worthless or Irrecoverable dated 8 January 2002 before the date of enforcement of this Notification, the commercial bank is required to write such collateralized debtor back on its account by reversing the previous accounting entries recorded at the time the debt was written off. For debtors with no underlying collateral, if the commercial bank wishes to write the debtor back on its account, it shall also do so by reversing the previous accounting entries recorded at the time the debt was written off. 4.14 With regards to required provisions for assets classified as Special Mention under 4.7 and assets classified as Pass under 4.8, where the Bank of Thailand has determined that the provisioning rate set out following the Bank of Thailand's rules, procedures, and conditions is insufficient to mitigate the risks of a particular commercial bank, the Bank of Thailand has the authority to order that commercial bank make additional provisions for that asset at an appropriate provisioning rate not exceeding 2% for assets classified under Special Mention or 1% for assets classified as Pass, whichever the case may be. 4.15 As long as the commercial bank has not written off losses incurred through worthless or irrecoverable assets or made full provisioning for worthless or irrecoverable assets, the commercial bank shall not make dividend payments nor any other such payouts (which originate from the firm's profits) to its shareholders. 4.16 In the case where any commercial bank wishes to classify assets and claims and set provisions using more stringent criteria than prescribed in this Notification, it may do so. 4.17 The commercial bank shall dispatch reports on loan and contingent liabilities review to the Bank of Thailand in accordance with the rules, procedures, and forms prescribed by the Ministry of Finance. 5. Effective This Notication shall come into force from the day following the date of its announcement in the Royal Gazette. Notified on 23 August 2004 (M.R. Pridiyathorn Devakula) Governor The Bank of Thailand Regulation and Method of Calculating Migration Rate of Assets Classified as Pass and Assets Classified as Special Mention 1. Financial institution shall make provisions required for assets classified as Special Mention and assets classified as Pass at 2% and 1% respectively, or at lower rate by which is calculated from migration rate of assets classified as Pass and assets classified as Special Mention to assets classified as Substandard, Doubtful, Doubtful of Loss and Loss that actually incurred during previous 4 following quarters. The calculation is shown below: 1.1 the migration rate of each quarter shall be calculated from ratio of assets classified as Pass or assets classified as Special Mention at the beginning of quarter that migrate to assets classified as Substandard or lower at the end of such quarter, excluding new debtors during that quarter and debtors undertaken debt restructuring. 1.2 migration rate of previous 4 quarters means an average ratio of current quarter and previous 3 consecutive quarters. -YK-