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Published on January 18, 2008

Like general investors, depositors have to carefully consider whether the returns they obtain from banks offering high interest rates are worth the higher risk.

Depositors must realise that the risk factor will be different at every bank.

When the Financial Institutions Development Fund's blanket guarantee is removed, each bank's bottom line and other financial standing must be taken into account.

Riskier banks are likely to offer higher deposit interest rates compared to lower-risk banks in order to attract depositors.

Chodchai Suwanaporn, a director at the Finance Ministry's Fiscal Policy Office, said he expected depositors' behaviour to change after the DIA Act is implemented.

People will lodge their money with various banks in order to keep their deposits fully guaranteed under the law.

For example, they could maintain their deposit at Bt100 million per bank in the second year after the DIA's establishment, Bt50 million in the third year and Bt10 million in the fourth. This would ensure that they would get all their money back in the event that a bank had to close down.

According to the upcoming law, all depositors will continue to receive a blanket guarantee in the first year of the DIA's establishment. In the second year, they will be fully guaranteed on up to Bt100 million on deposit per bank and in the third and fourth years the guarantee will fall to Bt50 million and Bt10 million, respectively.

From the fifth year, depositors will be fully guaranteed for just Bt1 million on deposit per bank.

Bank of Thailand senior director Chanchai Boonritchaisri said the guarantee would fall to Bt1 million in September 2012.

Some depositors may think that the maximum guarantee of Bt1 million is too low, but they might change their mind when they look at other deposit guarantees in the region.

Only Japan and South Korea have set higher guarantees of Bt3 million and Bt2 million, respectively. These are higher than the Kingdom's because the two countries are more developed and have a higher cost of living. Other countries in the region have set lower levels.

Depositors may not be concerned about placing their money with various high-risk banks as long as the deposits are below Bt1 million.

Savers with combined deposits of no more than Bt43 million could be fully guaranteed if they equally distribute the money into all 43 financial institutions. But those who do not want to actively manage their money, or have a large amount of savings, should certainly take into account each bank's financial performance.

Chodchai added that some depositors might shift most of their money into large banks on the assumption that regulators would not allow major banks to crash. They believe that big banks will never fall, he said.

"Depositors could think that the [change in] deposit-guarantee policy is just another announcement and not believe the regulators would let banks, particularly the bigger ones, go bankrupt," he said.

The law protects "innocent depositors", as the majority are not financially literate and also may not be able to obtain the necessary information. When any bank fails, the law will help them recover their savings.

However, those who are members of pension funds, provident funds, the social security fund or mutual funds will have to wait for another law to be passed that authorises the DIA to protect their money.

Anoma Srisukkasem

The Nation