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Published on October 11, 2007

The Thai Bankers' Association yesterday expressed concern about the proposed Deposit Insurance Act. It said for the sake of fair competition, deposits at specialised financial institutions like the Government Savings Bank, the Government Housing Bank and the Bank for Agriculture and Agricultural Cooperatives should also fall within the scope of the new law.

"Money may be shifted to specialised financial institutions [when the Act becomes law], because the government guarantees all money deposited [with these institutions], and if financial problems crop up, the problem will be shouldered by taxpayers," said deputy secretary-general, Sirimas Watanachoti.

She was speaking at a seminar entitled "Deep-Analysis: The Deposit Insurance Act".

The proposed Act is awaiting final approval from the National Legislative Assembly. It will establish a Deposit Insurance Agency to guarantee depositors' funds in the event of a bank's bankruptcy. Once established, the agency will limit its guarantee to Bt100 million for each depositor at a commercial bank. The guarantee will fall to only Bt50 million per person in mid-2009, Bt25 million in mid-2010, Bt10 million in mid-2011 and finally Bt1 million in mid-2012.

Sirimas also questioned whether commercial banks would continue contributing 0.4 per cent of deposits to the agency after the Act was enforced. She suggested a lower rate of contribution be imposed upon commercial banks with high credit ratings.

"If not, those with high credit ratings must bear the burden of the others."

She also urged commercial banks to prepare themselves ahead of implementation of the Act, in case of runs on deposits if depositors misunderstand the Act.

Fiscal Policy Office deputy director-general Kritsda Udyanin threw his support behind the proposed law, saying it would raise the confidence of commercial banks' depositors and lower their risk.

He explained that the proposed Act did not cover specialised financial institutions because they had high management burdens, and the interest-rate mechanism could be used as an efficient marketing tool.

Government Pension Fund chief economist Arporn Chewakriengkai said the new law would not have an adverse effect on the fund, because it had rated credit to financial institutions.

The Government Pension Fund has 1.2 million members and assets worth Bt350 billion under management.

Arporn said the issue of most concern was government agencies educating the public, in order to prevent a run on deposits by people shifting their money from small banks to large ones. Thai Financial Planners' Club chairman Reungvit Nandhabiwat said the proposed Act would not hurt the majority of depositors, because 98 per cent of them had deposits of less than Bt1 million per account.

The Nation