• 
• 

Published on September 7, 2007

Bank of Thailand (BOT) assistant governor Pairoj Hengsakul said the exact timing and the size of the issue had to be considered carefully to prevent any other impact.

"We have to take into account related factors that could affect the market. For example, the central

bank has just issued saving bonds of Bt85 billion," he said.

As of December, the fund's debts in the repo market were at Bt253 billion.

The FIDF wants to refinance its short-term debts in the repo market in order to extend the maturity of its debt burden and reduce distortion of interest rates in the market.

The fund had planned to issue the bonds mid-year, but the financial environment was not suitable, particularly the volatility in interest rates.

During the 1997 economic crisis, the fund injected tremendous liquidity to rescue troubled financial institutions. As a result it carries a debt burden of Bt1.4 trillion, which it has covered by borrowing in the repo market and issuing the bonds.

The FIDF is responsible for the bonds' principal amount, while the Finance Ministry is responsible for the interest burden.

The FIDF is to be shut down after completing its liquidation process, after which the central bank will assist any troubled banks with rehabilitation. If the rehabilitation process fails, the soon to be set up Deposit Insurance Agency (DIA) will be the only agency to return the money to depositors in bankrupted financial institutions.

In its first year, the DIA will guarantee up to

Bt100 million per depositor per bank, but the amount will be gradually lowered to Bt1 million by its fifth

year.

Many countries guarantee deposits up to various limits. For example, the US government guarantees deposits up to $100,000 (Bt3.43 million), Japanese authorities up to ¥10 million (Bt2.98 million) and the South Korean government up to 50 million won (Bt1.8 million).

Pairoj said that initially financial institutions would be obliged to contribute about 0.4 per cent of deposits to the DIA annually, but later the ratio would depend on each bank's credit rating. The contributions are based on the concept of private sector operators to take care of each other.

Separately, BOT Deputy Governor Bandid Nijathaworn said that about 40 banking experts would meet on Monday to brainstorm on the Financial Master Plan Phrase II.

The seminar aims to clarify the direction of the plan, which should eventually benefit both banks and consumers.

Bandid said that after the session, the BOT expected to improve related regulations to reduce bank's operating costs, and to develop financial infrastructure.

Anoma Srisukkasem, The Nation