Comparing Thai agri bank and Land Bank of the Philippines

(First of two parts)

Thailand’s Bank for Agriculture and Agricultural Cooperatives (BAAC), established in 1966, is the country’s premier agriculture bank. BAAC has always been cited as a business model for Land Bank of the Philippines (LBP). LBP was founded in 1963 as part of the Agrarian Land Reform Code.

Among the testimonials for BAAC have been:

BAAC has come to be internationally recognized as one of the few specialized, government-owned rural finance institutions which has been successful in carrying out its mandate without government subsidies. Its loan outreach to Thailand’s rural poor and its savings mobilization performance are impressive.

BAAC has demonstrated to other Thai institutions that lending in rural areas can be a profitable activity, thus encouraging an increase in lending by other banks” (Fitchett, BAAC Case Study, 1999).

From the Asia-Pacific Rural and Agricultural Credit Association (APRACA), a nongovernment international organization composed mainly of central banks, banks of all types and federations of financial institutions: “By 2012, BAAC has covered a total of 6.72 million farm households or 92.7 percent of all farm households in Thailand” (https://www.apraca.org/).

LBP in its own right has received many awards from international groups as a well-managed bank. In 2015 alone, LBP bagged awards at the International Banker Awards in London as the Best Commercial Bank, Innovation in Retail Banking in the Philippines award.

In 2016, LBP was named “Most Socially Responsible Bank” in the Philippines by London-based International Finance Magazine (LBP website).

Are BAAC and LBP comparable? This column will attempt to compare and contrast the two leading Asean agri banks.
BAAC had total resources of almost P1.9 trillion in 2015 as compared to LBP’s P1.2 trillion, or 65 percent bigger.

BAAC’s loan size reached P1.6 trillion versus LBP’s P550 billion, or almost three times larger.

The banks’ agriculture lending are similar: about a third of total loan portfolio. But in total agri loans, BAAC lending reached P517.5 billion as compared to LBP’s P137.6 billion, or almost four times.

In loan-deposit ratio, BAAC had 92 percent versus LBP’s 53 percent. Does this mean LBP has more resources to expand lending? BAAC’s return to equity is lower at 7.6 percent compared to LBP’s 15.7 percent.

BAAC agri loans were almost four-times (3.8x) than that of LBP loans in 2015. Why the larger BAAC loans? Two explanations. First, the total crop areas in Thailand (~20M hectares) is 50 percent bigger than that of the Philippines (~13.5M hectares). Second, Thailand has a more productive, diversified and competitive agriculture and aquaculture and agri manufacturing than the Philippines. There are distinct differences in crop areas, productivity and leading exports of Thailand versus the Philippines.
Among 10 selected crops, the Philippines is behind Thailand in eight crops. The Philippines is ahead of Thailand in rice. But Philippine farm production cost was 23 percent higher in the high-yield season and 66 percent higher in the low-yield season during crop year 2013/2014 (IRRI-Philrice Study, 2016). This explains why Thailand can export and the Philippines cannot.

The Philippines exported only $5.1 billion worth of agri-food products in 2016 versus $42.2 billion for Thailand. The Philippines had only $2-billion exports (coconut and banana) versus Thailand’s 13.

This sad reality is caused by low productivity, poor diversification and narrow agri-manufacturing base. In Thailand, a productive and well-diversified agriculture nurtured many agribusiness companies with global presence.

A wide export base means that the Thai BAAC has far wider latitude for agribusinesses finance.

(To be continued)