Monday, July 22, 2019

Panel to tackle cooperative loan default risk

Aug 28. 2018
Agriculture and Cooperatives Minister Grisada Boonrach
Agriculture and Cooperatives Minister Grisada Boonrach
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By The Nation

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FEARING A large number of defaults on loans given out by savings and credit union cooperatives, Agriculture and Cooperatives Minister Grisada Boonrach has set up a sub-committee to find solutions within 30 days.

The sub-committee’s findings will then be proposed to the Cabinet before a ministerial regulation is created to govern the behaviour of cooperatives regarding deposits, investments, and approval of loans, as well as dividends and bonus payments, he said.

Grisada said yesterday that the sub-committee will include representatives from four agencies – the Agriculture and Cooperatives Ministry, the Bank of Thailand, the Securities and Exchange Commis-sion and the Cooperative League of Thailand. 

The move was made after an advisory committee resolved on Monday to call for improved management and supervision at the institutions. 

It followed a recent report that Bt2 trillion had poured into savings and credit union cooperatives, with Bt1.9 trillion of that being loaned to 3,213,937 members at 1,461 cooperatives. The report concluded the level of debt could pose a risk to the economy, Grisada said. 

“With such a close gap between the two amounts, there is a worry that some credit union cooperatives could not adequately manage the money. This is because cooperatives give loans to members to make their financial status liquid, to repay old debts or to cover personal expenses. Hence there is a risk of people not repaying the loans on time and the cooperatives could suffer illiquidity. However, the cooperatives’ system has nothing to support tackling this issue – unlike other financial institutes,” he said. 

He also said the potential of such a scenario had prompted the cooperatives to hike the rate of allowance for doubtful accounts in the past five years. The rate was at Bt4.9 billion (0.36 per cent of the loans in the cooperatives’ system) in 2013, Bt4.5 billion (0.29 per cent) in 2014, Bt8.5 billion (0.50 per cent) in 2015, Bt9.6 billion (0.53 per cent) in 2016, and Bt11.6 billion (0.60 per cent) in 2017.

The minister said the phenomenon of people depositing money in the savings and credit union cooperatives was due partially to the fact that commercial banks and other financial institutes had lowered their savings account interest rates, while cooperatives kept theirs at 3 to 4 per cent. 

A July 31 audit found flaws at 51 savings and credit union cooperatives covering damages worth Bt9.6 billion. They included 13 graft cases worth Bt373 million, six cases of accounting flaws worth Bt34.39 million, 11 cases of financial administration flaws worth Bt144 million, 12 cases of spending on purposes other than what they had stated resulting in Bt667.7 million damages and 17 cases of “behaviour that can cause damages” worth Bt8.4 billion, according to the minister.

A source at the Cooperative Promotion Department said three savings cooperatives – one for teachers, another for railway personnel and the third for policemen – were facing illiquidity due to alleged graft. The committee was working to investigate and solve the problems as bankruptcy could affect many members, the source added.

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