Banks are now allowed to use B/Es to borrow directly from retail customers, companies and institutional investors, and foreign currency B/Es to sell to non-residents or financial institutions that are authorised to conduct forex transactions.

Tongurai Limpiti, a senior director of the central bank's Financial Institutions Policy Group, said the changes were aimed at widening choices of savings for depositors as well as sources of funds for banks. "We have just relaxed the rule because it could overlap with finance companies which were allowed to issue B/E's. But finance companies will no longer exist [under the government's financial institution master plan]," she said.

Banks were previously limited to selling B/Es to other financial institutions, not the general public.

A central bank source said the B/Es would yield a higher return than deposits. Banks can offer competitive returns depending on their financial management and market forces.

However, banks have to publicise the rates and provide customers enough information to analyse the risks involved.

Tongurai said the new financial instrument was not risky, likening it to promissory notes or floating rate notes.

The entire principal and interest of B/E's is not guaranteed by the Financial Institutions Development Fund or the upcoming Deposit Insurance Agency. However, part of B/Es will be guaranteed when the Deposit Insurance Agency is completely up and running, the source said.

The B/Es will mostly mature within a one-year period.

Banks are not subject to reserve requirements for their baht-denominated B/Es, as they are for their deposits.

Satian Tantanasarit, chief of treasury and markets at TMB Bank, said the lifting of restrictions on bank B/Es would benefit the money market.

Pakorn Peetathawatchai, executive vice president and head of the treasury division at Siam Commercial Bank, welcomed the news, saying both B/E issuers and investors stood to gain.

Anoma Srisukkasem

The Nation