Thailand State Banks See Billions In Withdrawals After Rumors Of Deposits Being Used To Fund Rice Scheme Surfaced

Three of Thailand’s state banks have experienced a bank run as the nation continues to grapple with political instability, after it was speculated that the banks were involved in lending to the troubled rice subsidy of the Yingluck Shinawatra administration. One of the banks, the Government Savings Bank (GSB), lost 30 billion baht ($1 billion) in deposit in a single day.

The Bank of Agriculture and Agricultural Cooperatives (BAAC) and Krungthai Bank (KTB) also experienced deposit flights, though on a smaller scale than the GSB, the Bangkok Post reported on Tuesday.

“Such actions are deemed to help the government avoid legal restrictions,” said Lalida Veeravithayanant, a doctor at a local hospital, referring to the alleged loans. “It’s not solving the right problem."

The controversial rice scheme, which offered farmers a 40 percent to 50 percent premium on market prices, became unpopular shortly after its inception in late 2011. The attempt to distort the global market by hoarding a large supply, betting that prices would increase, backfired when competitors from India and Vietnam benefited by filling the supply gap, leaving Thailand with too much rice on hand, and a tab of 400 million baht for just the first two seasons.

The spikes in withdrawal occurred when the GSB approved short-term loans to existing customers who are rice traders and exporters, taking part in the government’s rice auctions and rumors that deposits were being used to pay off farmers spread, which GSB President Worawit Chailimpamontri denied during press conferences on Sunday and Monday, insisting that the loans were not meant to fund the rice scheme.

Even so the bank run is affecting normal services at the banks. Veeravithayanant was denied when she requested a cash withdrawal at a KTB branch. The excuse was that there were insufficient funds due to withdrawal requests from many depositors, according to the Bangkok Post. If more depositors cannot get their money back in full and immediately, the banks could find themselves in hot water.