The government is seeking a loan from the Asian Development Bank (ADB) for the Bank for Agriculture and Agricultural Cooperatives (BAAC) to re-lend to other state financial institutions, aiming to reduce the interest cost burden for small borrowers.
According to Deputy Finance Minister Julapun Amornvivat, who also serves as chairman of the BAAC's board of directors, the Finance Ministry submitted a loan request to the ADB. The loan is classified as green financing and structured as a two-step loan, providing low-interest funds for state banks to re-lend to their clients.
The subsequent loans to clients must align with the ADB's green loan objectives, he said.
Mr Julapun said the loan request was initiated following Prime Minister Paetongtarn Shinawatra's visit to China, where she met with the ADB president on Jan 17. During the meeting, negotiations started for securing the loan to allow state banks to access low-cost funds to extend affordable loans to small borrowers.
The ministry later submitted a formal request to the ADB for the loan.
The loan amount requested is expected to be in the billions of baht. Details regarding the interest rate and repayment period are still under review.
"We believe this loan will primarily be allocated to the BAAC. The interest rate for re-lending will be around 50 satang lower than the market rate. However, the concept for lending must align with the lender's purpose, which is to issue green loans," he said.
"The loan is expected to be secured within a few months, and we can confirm it will not impact the fiscal position as the loan amount is not very substantial."
Mr Julapun also mentioned agricultural lending, stating the BAAC remains the primary lending mechanism for that sector. Although other banks have entered the same market, small farmers are rarely clients of other banks, with most relying on the BAAC.
Similarly, processors and entrepreneurs in related fields often find it difficult to access funding from other banks, he said. The BAAC serves as a state mechanism to provide essential support to the farming sector, said Mr Julapun.
However, the BAAC bears a significant burden due to its high financial costs, which could lead to an increased interest burden for the public, he said. Measures are needed to address this issue, including government assistance in certain areas to reduce the financial costs of state banks, said Mr Julapun.
He insisted the BAAC's lending mechanisms are functioning smoothly, while the bank plans to focus more on large clients.
"However, the bank continues to support small borrowers as they form the majority of our customer base. Everyone who is a customer at the BAAC belongs to a vulnerable group," said Mr Julapun.
"The regulations set by the Bank of Thailand apply equally to all banks, which makes it challenging for us. Yet we are still committed to fulfilling our responsibilities."
He acknowledged the BAAC's costs fluctuate at times due to the need to mobilise deposits.
"Nowadays, everyone is competing in the same market," said Mr Julapun.
Previously state banks such as the Government Housing Bank, Government Savings Bank, and the BAAC operated in a less crowded field. Now other banks are entering the market, and competition for agricultural clients has intensified.
This requires further discussions to ensure state banks do not end up competing against one another, he said.
