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Published on March 14, 2008

On August 11, savers will have to change their attitude and behaviour, because that is when the new Deposit Protection Agency (DPA) Act will take effect.

"Depositors must begin thinking about their savings carefully and managing their purses actively," Chanchai Boonritchaisri, senior director of the central bank's Legal and Litigation Department, said yesterday.

Depositors will have to study the strength of commercial banks rather than their interest rates after the current blanket guarantee expires in August 2009. And the partial guarantee that follows will be reduced in steps to Bt1 million per person per bank by 2012.

The Bank of Thailand (BOT) is urging savers not to panic and seek haven in secure banks. It wants them instead to take the opportunity when the new law is implemented to improve their financial knowledge.

First, savers should consider each bank's performance and other financial indicators when deciding which one to put their trust in.

This will contribute to market discipline, because banks will work more seriously to improve themselves and obtain high credit ratings; otherwise, they will inevitably go out of business, Chanchai said.

Under Basel II, financial institutions will have to become more transparent about the middle of next year, disclosing information on capital and risk-management systems among other details.

"The data disclosure will help people understand banks' financial status, risks and management," said BOT Deputy Governor Bandid Nijathaworn.

Second, people should gradually diversify their investment portfolio as more channels open up due to financial-industry development, Chanchai said.

"They should distribute money into different markets to lower risk and boost returns," he said.

For example, the mega-infrastructure projects and the new Public Debt Management Act will lead to more bond issues.

He was not worried about deep-pocket savers whose financial literacy and skills were relatively strong.

The partial guarantee may be an unacceptable practice and could possibly shake the confidence of some individual and corporate savers, who may feel uncomfortable that their money will no longer be completely safe like it has been for the past decade. They forget that before the 1997economic crisis, savings accounts were not guaranteed at all.

The point is the blanket guarantee has been around for too long, promoting improper attitudes and behaviour among savers, he said. They do not want to lose government-extended privileges.

Last, depositors should not fear the DPA Act, because the blanket guarantee will remain in the first year and the Bt100 million worth of coverage in the second year is still high for most of them.

The new law will not change much in the first two years, as the number of deposit accounts worth more than Bt1 million is minimal.

No country has prolonged the blanket guarantee like Thailand. Japan and South Korea had partial guarantees before the economic crisis. They made it a full guarantee during the crisis but later returned to the partial guarantee.

Malaysia and Indonesia gave blanket guarantees only for a short period during the economic crisis before instituting ceilings.

Some large depositors, particularly companies with deposits exceeding Bt10 million, will possibly begin to shift their funds in the third year of the law before the deposit ceiling drops to Bt10 million in the fourth year.

But the trend will not be severe, because the companies must maintain their "give and take" business with their banks, such as credit.

Anoma Srisukkasem

The Nation