Non-performing loans rising in Thailand's agricultural sector
By Jon Fernquest
Non-performing loans (NPLs) are
forecast to rise to 9.5% of total loans at the Bank for Agriculture and
Agricultural Co-operatives (BAAC). The 8.5% was the initial target for the 2008 fiscal year so the revised forecast of 9.5% is just a little bit higher.
Why are non-performing loans increasing?
Non-performing loans (NPLs)
- loans that the borrower has stopped paying
back หนี้เสีย
Bank for Agriculture and Agricultural Co-operatives (BAAC) - Thai government bank specialising in microfinance and banking for farming households (See website, a case study [pdf], at the FAO, and at microfinance gateway) ธนาคารเพื่อการเกษตรและสหกรณ์
fiscal year - a period of twelve months that a company prepares a full set of financial records and reports for ปีงบประมาณ
revised forecast - making the forecast again later (after new information becomes available) การคาดการณ์ใหม่
Bank for Agriculture and Agricultural Co-operatives (BAAC) - Thai government bank specialising in microfinance and banking for farming households (See website, a case study [pdf], at the FAO, and at microfinance gateway) ธนาคารเพื่อการเกษตรและสหกรณ์
fiscal year - a period of twelve months that a company prepares a full set of financial records and reports for ปีงบประมาณ
revised forecast - making the forecast again later (after new information becomes available) การคาดการณ์ใหม่
First prices shot up...
Earlier this the price of agricultural commodities such as rice shot up worldwide along with the price of commodities such as oil.The promise of higher crop prices spurred many farmers to invest more in expanding production. .
With record high oil prices the cost of the inputs to rice production derived from petrochemicals such as fertiliser and pesticide also shot up.
Farmers had to pay higher fertilizer and pesticide costs.
Following expectations of increased profits from farming and the vagaries of supply and demand farmland rental fees increased also.
a commodity - a
product with every unit the same (uniform, homogenous), every farmer
produces essentially the same product ผลผลิตทางการเกษตร
agricultural commodities - crops such as rice, corn, cassava,...etc ธัญพืช
the promise of higher prices - a situation in which higher prices are likely น่าจะได้ราคาดี
spurred - caused ก่อให้เกิด
inputs to rice production - the things needed to produce rice (workers, land, seed, a plow, water...) ปัจจัยในการปลูกข้าว
petrochemicals - chemicals made from oil or natural gas สินค้าหรือผลิตภัณฑ์ปิโตรเคมี
fertiliser - chemicals given to plants to help them grow (See Wikipedia) ปุ๋ย
pesticide - chemicals to kill insects that eat and destroy plants (See Wikipedia) ยาฆ่าแมลง
vagaries - unexpected and unpredictable changes in a situation ความไม่แน่นอน สิ่งที่คาดการณ์ไม่ได้
the vagaries of supply and demand - when supply and demand for a good or service changes in unpredictable and thus uncontrollable ways การเปลี่ยนแปลงของอุปสงค์อุปทานที่มีมากจนให้ผู้วางนโยบายเศรษฐกิจไม่สามารถคาดการณ์การผลิตได้
agricultural commodities - crops such as rice, corn, cassava,...etc ธัญพืช
the promise of higher prices - a situation in which higher prices are likely น่าจะได้ราคาดี
spurred - caused ก่อให้เกิด
inputs to rice production - the things needed to produce rice (workers, land, seed, a plow, water...) ปัจจัยในการปลูกข้าว
petrochemicals - chemicals made from oil or natural gas สินค้าหรือผลิตภัณฑ์ปิโตรเคมี
fertiliser - chemicals given to plants to help them grow (See Wikipedia) ปุ๋ย
pesticide - chemicals to kill insects that eat and destroy plants (See Wikipedia) ยาฆ่าแมลง
vagaries - unexpected and unpredictable changes in a situation ความไม่แน่นอน สิ่งที่คาดการณ์ไม่ได้
the vagaries of supply and demand - when supply and demand for a good or service changes in unpredictable and thus uncontrollable ways การเปลี่ยนแปลงของอุปสงค์อุปทานที่มีมากจนให้ผู้วางนโยบายเศรษฐกิจไม่สามารถคาดการณ์การผลิตได้
Then prices nosedived...
When the global financial crisis hit demand later in the year, the prices of agricultural commodities started falling but the inputs used to produce them remained high, squeezing farmer profit margins:Although fuel prices are
now dropping, rice production costs are still the same. The
cost of producing the main rice crop is approximately 3,000 baht per
rai, and the second crop 4,300 baht per rai. Each farmer normally earns
between 2,000 and 4,000 baht, with most of the revenue used up for debt
repayment...
nosedived - fall
quickly by a large amount (like the "nose" of airplane "diving" and
falling quickly to the ground) ดิ่ง ร่วงลงอย่างรวดเร็ว
hit demand - caused a decrease in aggregate demand การลดลงของความต้องการในการบริโภค
aggregate demand - the overall demand for all goods and services in an economy
profit margins - profit as a percentage of selling price (which measures the efficiency of company) กำไร
squeezing profit margins - reducing the amount of money made on goods produced ลดอัตราที่จะทำกำไร
hit demand - caused a decrease in aggregate demand การลดลงของความต้องการในการบริโภค
aggregate demand - the overall demand for all goods and services in an economy
profit margins - profit as a percentage of selling price (which measures the efficiency of company) กำไร
squeezing profit margins - reducing the amount of money made on goods produced ลดอัตราที่จะทำกำไร
Facing this profit squeeze, the debt level of farmers has shot up:
Last
year the total debt owed by farmers was 90.64 billion baht, according
to the Siam Commercial Bank and the Bank for Agriculture and
Agricultural Cooperatives (BAAC). But their total debt in the first
three months of this year alone has already reached 83.74 billion baht.
The figure does not include the illegal loans that they may have also
acquired....
The BAAC has also had to extend new loans to the government to support the expanded agricultural price support system:
The BAAC had a target of
295 billion baht in loans in the 2008
fiscal year and expects to exceed the target by 110 billion baht,
thanks to the state mortgage programme for rice, corn and tapioca...
agricultural price support
system, crop-mortgage programme - the
government programme to buy part of crops at a price above market
prices to make sure that farners get a fair price for their crops
(the initial purpose of this programme was to protect farmers against price fluctuations, it has turned into a vote-getting tool and a direct subsidy that has lead to ballooning government inventories of rice and declining quality, see previous article)
(the initial purpose of this programme was to protect farmers against price fluctuations, it has turned into a vote-getting tool and a direct subsidy that has lead to ballooning government inventories of rice and declining quality, see previous article)
BAAC assesses the likelihood of loan payback (credit rating) and whether to renew loans with a three-way breakdown of farmer debt:
The BAAC has divided its
debtors into three groups. In the first
group of farmers - those with a satisfactory
record in returning loans
and considered the least troubled - about 10-20% are expected to be
unable to pay back loans. For this group, the BAAC will relax loan
payment and still give out loans for the next season.
Debtors in the second group have owed the BAAC for more than two years. With the economic crisis, as much as 40-50% of this group of farmers may be unable to pay off their loans.
The last group contains borrowers with debts who - due to family problems or chronic illness - would be unable to repay their loans with or without the economic crisis. The BAAC might need to abandon these problem loans.
Debtors in the second group have owed the BAAC for more than two years. With the economic crisis, as much as 40-50% of this group of farmers may be unable to pay off their loans.
The last group contains borrowers with debts who - due to family problems or chronic illness - would be unable to repay their loans with or without the economic crisis. The BAAC might need to abandon these problem loans.
a credit rating - a
number calculated for each potential borrower that measures the
likelihood of loan payback การจัดอันดับเครดิต
renew loans - make the loan once again ปรับโครงสร้างเงินกู้
a breakdown - splitting into smaller pieces to make it easier to understand แยกออกหรือแตกออกเป็นกลุ่มย่อยๆ
renew loans - make the loan once again ปรับโครงสร้างเงินกู้
a breakdown - splitting into smaller pieces to make it easier to understand แยกออกหรือแตกออกเป็นกลุ่มย่อยๆ
(Source #1: Bangkok Post, general news, 21-12-2008, GROWING DEBT FORCING RICE FARMERS TO PUT THEIR FARMLANDS UP FOR SALE, LAMPHAI INTATHEP)
(Source #2: Bangkok Post, business, 22-12-2008, BAAC braced for NPLs reaching 9.5%, WICHIT CHANTANUSORNSIRI)
