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Surprise gift from bank: 3-year holiday for borrowers

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Borrowers with clean credit record don't need to pay back money for 3 years. Critics wondering why & about impact on bank finances. 

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Economics

BAAC may lose B6bn on debt plan

Ex-official worries bank may go bust
27/04/2012
Wichit Chantanusornsiri

A government plan to suspend debt payments for farmers could have a significant impact on the liquidity and credit rating of the Bank for Agriculture and Agricultural Cooperatives (BAAC).

One former BAAC senior executive said up to 90% of the funds used by the state bank came from loan repayments, with the rest generated through investment activities.

Allowing customers to voluntarily suspend their principal payments with no restriction could have a massive impact on the bank's finances.

Cabinet members this week approved a debt moratorium programme that will suspend principal repayments for borrowers from state banks for up to three years. Participants may suspend payments on loans of up to 500,000 baht per bank, and must have a clean credit record to participate. The programme will begin in September and run until August 2015.

The BAAC estimates that 2.9 million borrowers, accounting for 80% of its customer base, could qualify for the new measure. If all participate, the bank could lose up to 6 billion baht in income.

The programme mirrors in part an initiative launched over a decade ago, when the Thaksin Shinawatra government approved a three-year debt moratorium for farm borrowers.

Bank officials said the previous programme, limited to 100,000 baht in debt owed by problem borrowers, affected only 20% of BAAC's customer base. For borrowers current on their loans, the BAAC instead offered interest rate reductions as an incentive. Participants in the debt moratorium programme however were restricted from taking out new loans with the bank.

"Despite the Thaksin debt moratorium programme being designed quite conservatively, the BAAC still had to do quite a bit of explaining to its counterparties, including the World Bank, who were concerned that the programme could force the bank to go bust," said one official.

But current plans aim to expand the moratorium significantly, covering borrowers who have no problems in servicing debt. In addition to the moratorium on repayments, participating borrowers will also benefit from a three-percentage-point cut in their interest rates and be allowed to apply for new loans with few restrictions.

Sources said the Thaksin debt programme was quite cautious about potential moral hazards for the financial system. Participants were encouraged to take skills training programmes and savings initiatives by the bank.

Borrowers also were required to secure guarantees from their neighbours, a requirement aimed at encouraging communities to discipline themselves.

But the lack of conditions for the current programme will create a different mindset among participants, one banker warned.

"This programme will only foster the idea that the public doesn't have to support themselves, but can turn to the government for assistance. Rather than encourage people to help support the growth of the country, we are making them burdens of the state," he said.

What is the point of using public funds to help people who can already pay their debt? These funds would be better used to fund research programmes or other projects that will help our agricultural sector better compete in the future.

The BAAC, meanwhile, has reached an agreement with the Finance Ministry to increase its capital by 10 billion baht to 60 billion over a three-year period.

BAAC president Luck Vajananawat said the bank expects profits over the next several years to fall to 4.5-5 billion baht from 8 billion last year. 

(Source: Bangkok Post, Economics, BAAC may lose B6bn on debt plan, Ex-official worries bank may go bust, 27/04/2012, Wichit Chantanusornsiri, link

Debt Moratorium Vocabulary 

debt - an amount of money that you owe หนี้

moratorium - an official agreement to stop some activity temporarily (for a period of time)
debt moratorium - an official agreement to stop requiring borrowers to make payments on their loans for a period of time

BAAC may lose B6bn on debt plan

Cabinet members this week approved a debt moratorium programme

official - high level government worker with decisionmaking power
ex-official - a person who was an official in the past, but not now

bust - break or damage so badly that it cannot be used
go bust - business failure; go bankrupt

Ex-official worries bank may go bust

suspend - to stop for a period of time ยกเลิกชั่วคราว, ระงับชั่วคราว

significant
- important สำคัญ
impact - an effect or influence ผลกระทบ
significant impact

liquidity
- having enough cash (or assets convertable to cash) to continue in business and continue paying off debt and liabilities สภาพคล่อง

credit - money that you owe someone (a bill that grows until you pay it off at the end of the month, for example)
credit - loans เครดิต เงินกู้ทั้งหมด
credit rating - a number that banks determine whether you are likely to pay back loans on time

liquidity and credit rating of the Bank for Agriculture and Agricultural Cooperatives (BAAC).


A government plan to suspend debt payments for farmers could have a significant impact on the liquidity and credit rating of the Bank for Agriculture and Agricultural Cooperatives (BAAC).

executive
- the highest level managers in a company
funds - money needed or available to spend on something เงินทุน
state - government รัฐ
state bank - a bank owned and/or operated by the government
loan - an amount of money that a person, business, or country borrows, especially from a bank เงินกู้
loan repayments - the amounts of money paid back every month to pay back money borrowed (a loan)
generated - created
investment - taking your money and putting it into projects to make a profit or earn interest (buying stock shares, bonds, real estate)

One former BAAC senior executive said up to 90% of the funds used by the state bank came from loan repayments, with the rest generated through investment activities.

suspend - stop for a period of time; stop temporarily
suspend payment - stop paying money (for a period of time)
suspend principal repayments

voluntarily - done because you choose to do it rather than because you have to ด้วยความสมัครใจ
voluntarily suspend - stop for a period of time (because you want to do this; nothing is forcing you to do this)
voluntary suspend payments

restriction -
a rule that limits or controls an activity; controls what you can do
with no restriction - has no limits

impact -
the effect of influence an event has
massive - very large in size, amount or numberใหญ่โต มหาศาล
massive impact - has very big effect
have a massive impact on - has a very big effect

principal
- the amount of a loan
principal payments - paying back the amount of money borrowed (different than interest payments, the fee for borrowing)

restriction
- a rule, action or situation that limits or controls someone or something การจำกัด, การควบคุม
restricted - limited, controlled, prevented from doing some activities 
restricted from taking out new loans

clean credit
record - never had problems paying back loans in the past
participate - be part of some activity; to take part in or become involved in an activity มีส่วน

Allowing customers to voluntarily suspend their principal payments with no restriction could have a massive impact on the bank's finances. Cabinet members this week approved a debt moratorium programme that will suspend principal repayments for borrowers from state banks for up to three years. Participants may suspend payments on loans of up to 500,000 baht per bank, and must have a clean credit record to participate. The programme will begin in September and run until August 2015.

estimates - guesses of what the size, value, amount, cost, etc. of something might be การประมาณค่า

base
- a group of people on which your business or political power depends
customer base - the customers that a company has (loyal to the company, been using the company's products and services for a long time)

measure
- an action taken to solve a particular problem มาตรการ

qualify -
have what is necessary to do something (or be accepted by some organization such as a university as a student or a company as an employee)
qualify for program - have everything that is needed to be part of the program (participate in the program)

income - money that people receive from work or some other source, used for household consumption and savings

The BAAC estimates that 2.9 million borrowers, accounting for 80% of its customer base, could qualify for the new measure. If all participate, the bank could lose up to 6 billion baht in income.

mirror - look the same as
X mirrors Y - X is the same as Y, X looks the same as Y 
decade - a period of ten years ทศวรรษ, ระยะเวลา 10 ปี

initiative - a new plan for dealing with a problem or achieving some goal ความคิดริเริ่ม
launched - started เริ่มต้นดำเนินการ began เริ่ม
launched initiative - started a plan for dealing with and solving a problem

The programme mirrors in part an initiative launched over a decade ago, when the Thaksin Shinawatra government approved a three-year debt moratorium for farm borrowers.

borrowers current on their loans - borrowers who made all their loan payments on time (not late or in default)
interest rate
incentive
- a reward to make people do certain things

Bank officials said the previous programme, limited to 100,000 baht in debt owed by problem borrowers, affected only 20% of BAAC's customer base. For borrowers current on their loans, the BAAC instead offered interest rate reductions as an incentive. Participants in the debt moratorium programme however were restricted from taking out new loans with the bank.

designed quite conservatively
counterparty - one of the people, companies or organizations that are involved in a contract or some financial business
concerned - worried about something มีความกังวล

force - make or push someone to do something
force the bank to go bust - make the bank fail

"Despite the Thaksin debt moratorium programme being designed quite conservatively, the BAAC still had to do quite a bit of explaining to its counterparties, including the World Bank, who were concerned that the programme could force the bank to go bust," said one official.

aim - have a goal to; the thing you hope to achieve by doing something เป้าหมาย; purpose; goal เป้าหมาย จุดมุ่งหมาย
expand - to become larger ขายตัวออกไป
aim to expand - have a goal to make something larger 
aim to expand the moratorium

significantly - in an important way อย่างสำคัญ
aim to expand the moratorium significantly

servicing debt - making the payments on a loan (paying back the money you borrowed)
borrowers who have no problems in servicing debt

moratorium on repayments

benefit - to get help or an advantage from something ผลประโยชน์
benefit from a three-percentage-point cut
benefit - to help someone มีประโยชน์ต่อ

apply for a loan
apply for new loans

But current plans aim to expand the moratorium significantly, covering borrowers who have no problems in servicing debt. In addition to the moratorium on repayments, participating borrowers will also benefit from a three-percentage-point cut in their interest rates and be allowed to apply for new loans with few restrictions.

moral hazard - the situation where people or organizations are more likely to take risks because they are protected against the results, for example by insurance (See Wikipedia)
cautious
about potential moral hazards for the financial system

cautious - careful to avoid danger ระมัดระวังไม่ให้เกิดขึ้น
potential - possible ความเป็นไปได้
skills training programmes
encouraged - having more confidence or hope about something มีกำลังใจ
skills - a type of work or task requiring special training and knowledge ทักษะ ความสามารถเฉพาะทาง
training - to teach people how to do an activity or job การฝึกฝน
encouraged to take skills training programmes
savings initiatives


Sources said the Thaksin debt programme was quite cautious about potential moral hazards for the financial system. Participants were encouraged to take skills training programmes and savings initiatives by the bank.

guarantees - an agreement to be legally responsible for someone's debts  if they cannot pay them
secure - get something that is difficult to get ได้มาซึ่ง ให้ได้มา ได้รับ, ทำให้ได้ผล (example: secure a food supply)
secure guarantees
secure guarantees from their neighbour

discipline - the practice of making people (or yourself) obey rules and standards of behaviour and punishing them if they do not (See glossary) ปฏิบัติตามระเบียบข้อบังคับ
encouraging communities to discipline themselves

Borrowers also were required to secure guarantees from their neighbours, a requirement aimed at encouraging communities to discipline themselves.

lack - does not have ขาดแคลน
conditions - requirements or terms of an agreement; things that you must do
lack of conditions 
lack of conditions for the current programme

mindset - the general way that people think about things, their attitude
mindset among participants
create a different mindset among participants

But the lack of conditions for the current programme will create a different mindset among participants, one banker warned.

support - help, by giving money, for example สนับสนุน
support themselves - they earn the money they need to pay their living expenses

assistance
- help (given to someone)
encourage - make people interested in and excited about doing an activity ปลุกใจ cause someone to gain enthusiasm, motivation, and energy in what they are doing

"This programme will only foster the idea that the public doesn't have to support themselves, but can turn to the government for assistance. Rather than encourage people to help support the growth of the country, we are making them burdens of the state," he said.

fund - to provide money for something ให้เงินทุน
fund research programmes

sector
- a part of the economy ภาคเศรษฐกิจของประเทศ (public sector = government, private sector = all businesses, household sector = families and consumers, banking sector,...) (See Wikipedia)
agricultural sector
capital - money invested in a business  (See glossary)

What is the point of using public funds to help people who can already pay their debt? These funds would be better used to fund research programmes or other projects that will help our agricultural sector better compete in the future. The BAAC, meanwhile, has reached an agreement with the Finance Ministry to increase its capital by 10 billion baht to 60 billion over a three-year period. BAAC president Luck Vajananawat said the bank expects profits over the next several years to fall to 4.5-5 billion baht from 8 billion last year. 

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