First phase of rice loan bids underway

Economy January 30, 2014 00:00


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THE FINANCE MINISTRY will today open bidding among banks for short-term lending totalling Bt20 billion.

This forms part of the Bt130-billion funding that the caretaker government is seeking to pay off farmers for what they are owed under the rice-pledging scheme.

Meanwhile, Deputy Prime Minister and Commerce Minister Niwatthumrong Boonsongpaisan yesterday said that the rice-releasing subcommittee under the National Rice Policy Committee propose the committee to sell 800,000 tonnes of rice to seven private exporters for delivery in the next couple of months.

An academic has expressed concern that any commercial banks joining the bidding risk losing credibility among depositors.

The ministry’s deputy permanent secretary, Pongpanu Svetarundra, said yesterday that the Public Debt Management Office (PDMO) would today launch the first bidding, for Bt20 billion-worth of lending.

The funding, which will be provided to the Bank for Agriculture and Agricultural Cooperatives, will be guaranteed by the Finance Ministry.

“The borrowings will be in line with the market mechanism [the winner is the bank offering the lowest rate]. I expect that both commercial and state-run banks will be interested in joining the bidding, as the loan will be backed by the Finance Ministry. This means the loan is risk-free,” he said.

Commercial banks should, however, raise concerns over loans totalling up to Bt130 billion to be provided to the rice-pledging programme, an academic said yesterday.

Kiatanantha Lounkaew, director of Dhurakil Pundit University’s Research Centre, told Krungthep Turakij that whether the caretaker government’s borrowings – which might be in the form of lending by commercial banks – would affect the country’s banking system depended on the combined size of the loans.

According to Bank of Thailand data, there is surplus liquidity of Bt2.37 trillion in the system, meaning that a loan of Bt130 billion would account for 0.5 per cent of the total.

The government is preparing to borrow up to Bt130 billion to pay farmers for rice pledged in the 2013-14 harvest season.

As of January 24, farmers had been paid Bt54.98 billion for their latest crop. There were still 7.2 million tonnes of paddy, with a pledged value Bt120 billion, for which farmers had yet to be paid.

“If looked at numerically, the impact on the country’s surplus liquidity is not that high, resulting in little effect on loan interest rates and borrowing costs in the public sector,” said Kiatanantha. However, he said the commercial banks could be affected indirectly if they were to provide the government with loans in the current situation, as their credibility would be damaged in the eyes of depositors.

In his view, this was more of a risk for the banks than that of the interest income they could expect to earn from providing the loans.

Worawit Chailimpamontri, president of the state-owned Government Savings Bank, said yesterday that his institution had refused to provide loans to fund the rice-pledging scheme, fearing that this could affect its depositors’ confidence.

Union opposition

The idea of GSB providing such lending is opposed by the bank’s employees and the labour union. Yesterday, some 500 GSB labour union members wearing black gathered at its head office on Phaholyothin Road to oppose the bank’s possible approval of loans for the pledging scheme.

Worawit said the bank had not at that time received any letter from the Finance Ministry inviting it to participate in the bidding for bridging finance to be spent on the scheme.

“If we receive a letter, the authority to decide whether to join the bidding depends on consideration of the bank’s board when the amount of a loan exceeds Bt1 billion,” he added.

He said that while lending to the Finance Ministry would be risk-free, the bank’s employees had opposed lending for the rice-pledging scheme. However, as a state-owned bank, it would normally follow the government’s policies in supporting the funding of any state-owned investment projects. It had never previously faced a problem in doing so for the 100 years it had been in business, he added.

GSB's outstanding loans to the state sector currently stand at around Bt300 billion, some of which was lent to the Finance Ministry to finance the rice-pledging programme.

Meanwhile, Vasin Vanichvoranun, executive vice president of Kasikornbank, said the bank would consider joining the PDMO bidding for funding to shore up the rice-pledging scheme, with its consideration being based on four points.

“We will consider the lending conditions, the period of the loan, the bank’s liquidity and the return on investment,” he said.

KBank had yesterday received a bid invitation from the PDMO, he said.

A source from the banking industry said commercial banks were reluctant to join the bidding – even though the financing would be guaranteed by the Finance Ministry – because of concerns over good governance and the social trend against such lending.