The state-owned SME and Islamic banks are struggling to survive after having to shore up huge non-performing loans (NPLs) from careless lending by their managements, especially to their friends and political bosses. The two banks have combined NPLs of a staggering 70 billion baht, or 30% of 210 billion baht in loans extended.
To save the SME bank from going under and to ensure customers that their deposits are safe and the problem will be taken care of, the government is considering merging the troubled bank with the Government Savings Bank, which is financially stronger and more stable.
But the fate of the Islamic Bank is yet to be decided despite a suggestion from a former deputy finance minister that it should be merged with another state-owned bank, Krung Thai. The Islamic Bank's management is confident the NPL problem can be resolved.
Although in better financial shape, albeit perhaps only for the time being, the third state-owned bank, Bank of Agriculture and Agricultural Cooperatives (BAAC), is experiencing liquidity problems and may not be able to fulfil its commitment to buy up "every single grain" of unmilled rice for the new harvest from farmers who joined the rice pledging scheme unless there is fresh injection of funds amounting to 60 billion baht, or unless it receives payments of the same amount from its two debtors, the Commerce Ministry's Public Warehouse Organisation (PWO) and the Marketing Organisation for Farmers (MOF).
The Finance Ministry recently backed off from its plan to secure funding for the BAAC for rice purchases under the populist scheme but instead has demanded debt payments from PWO and MOF "within 15 days after they receive money from their rice sales".
BAAC claims its requests to the two agencies for debt repayments have been ignored, but Pranee Siriphan, director-general of the Foreign Trade Department, maintains that 65 billion baht has already been sent to the bank, while at the same time admitting that rice sales which will help ease the diminishing capacities in warehouses have not been going as smoothly as planned.
Commerce Minister Boonsong Teriyapirom also confirmed that payments to BAAC were on schedule and there is no problem for the flow of rice from stockpiles.
So who is speaking the truth and who is telling lies?
Here are some tips which may help you to decide who to believe. The 5% grade white rice from Thailand is currently priced at US$599 (17,900 baht) per tonne, compared to Vietnam's $385/tonne, India's $430/tonne and Pakistan's $420/tonne. My question is this: which buyers will be so interested in buying or are so foolish as to spend an additional $150/tonne to buy Thai rice?
And since both Mr Boonsong and Ms Pranee claim rice is being sold under government-to-government deals and there is no problem with the BAAC, would they have the decency to show us the rice deals, who the buyers are and the prices of the rice sold?
If their answer remains negative on the ridiculous ground that information about rice deals is classified, then you should know who you can trust and who is telling lies.
Anyway, BAAC must have the money in hand by April, the latest time by which the second crop paddy is to be harvested and pledged. The paddy for the 2012-13 crops to be bought under the rice pledging scheme remain unchanged at 26 million tonnes _ 11 million tonnes of second crop and 15 million tonnes for the main crop.
The funding problem aside, the government is determined to carry on with the rice pledging scheme no matter how badly flawed the programme is or despite the criticism against it.
Personally, I have no objection against the scheme if only farmers are the real beneficiaries. The programme needs to be rectified and made more realistic.
To keep the scheme alive, BAAC may be forced to find some way to secure needed funds if it does not receive payments from MOF and PWO _ which is the most likely prospect because the expensive Thai rice will not be easily sold and most of it will rot or be eaten up by insects in warehouses. Or secretly sold at a loss.
In the worst case scenario, BAAC may be pressured to cut back its normal lending, amounting to 160 billion baht a year, to support the rice pledging scheme. This would mean that other potential borrowers will be affected as there will be less money for them.
A sign of what BAAC is to face and the possibility that it may have to bow to greater political pressure in order to sustain the Pheu Thai party's flagship populist policy has manifested itself in the cabinet's decision last Tuesday to appoint a new board of directors for the bank which include six new faces, all closely connected with the ruling party. Among them are former commerce permanent secretary Yanyong Puangrach; Sommai Kusap, former legal advisory chief to Deputy Prime Minister Chalerm Yubamrung in the defence of his son on a murder charge; Wasin Thiravechyarn; Virat Sakchirapaopong; Thanarat Vichienrat; and Thaweep Tantipipatkul.
BAAC was awarded the best state enterprise award last year, probably for its unquestioned support for the government's populist policies. I would not be surprised if it received the same award this year. But there is a price to be paid and I hope BAAC will not end up like the SME or Islamic banks.
But buying up more rice from the new harvest will create more problems for storage which is now at a premium from the rice bought last year. Some white rice may have turned yellow or started to rot because it has been kept for too long in warehouses.
Deputy Agriculture Minister Yuthapong Charassat was shocked when he found out last week that about 10,000 tonnes of rubber bought under another populist scheme had been left to rot in warehouses in northeastern provinces.
But the rotten rubber is just kid's stuff compared to the millions of tonnes of milled rice currently left unsold in warehouses across the country. When it starts to rot, I wonder how Commerce Minister Boonsong will react?
Veera Prateepchaikul is a former editor, Bangkok Post
About the author
- Writer: Veera Prateepchaikul
Position: Former Editor