New deposit rule likely to shift money to other instruments, says Kasikorn Bank unit

Depositors line up for forms to open special deposit rate accounts at Krung Thai Bank at a recent money fair. Millions of baht are expected to be redirected to other investment tools after the Deposit Protection Agency is launched next month.

According to the agency's rules, bank deposits would not be 100-per-cent guaranteed by the government anymore.

The level of guarantees will be gradually reduced over five years.

Due to the revision, depositors are expected to move their money out of banks to other channels of investment.

According to a survey on depositors conducted by Kasikorn Research Centre, about Bt355.19 billion in deposits are expected to leave bank accounts over the next five years, or Bt71.04 billion a year.

 Some of the money is likely to move to property investments - by Bt93.29 billion in five years or about Bt18.67 billion a year after establishment of the Deposit Protection Agency, the research body said.

On August 11, the Deposit Protection Act will be implemented.

So far, deposits of commercial banks are 100-per-cent protected by the government in case a bank's business license is cancelled or if it goes bankrupt.

But after the new act takes effect, the protection on deposits will be gradually decreased from 100 per cent in the first year to only Bt100 million per person per bank in the second year, Bt50 million in the third year, and Bt10 million in the fourth year.

From the fifth year onwards, or after August 11, 2012, the deposit guarantee will be reduced to only Bt1 million per person per bank.

Therefore, depositors who have more than Bt1 million in a bank, will be affected and may have to think about diversifying their investments.

There are about 900,000 accounts that contain Bt1 million or more, representing 1.2 per cent of depositors.

But this percentage of savers hold 73 per cent of the total amount of money saved, which is about Bt5.1 trillion.

Pisarn Manoleehagul, chairman of Kasikorn Research Center, said the survey tried to gauge the action depositors would take when they were shown the Deposit Protection Act.

The survey was conducted last March. It focused mainly on depositors who have between Bt1 million and Bt100 million in bank deposits.

"About 61 per cent of respondents are still unaware of the Deposit Protection Act, while 39 per cent said they were aware of it," said Pisarn

Pisarn said the investment proportion of deposit in a bank will fall from 27 per cent of total investment now to 9 per cent of total investment in five years after the act's implementation.

When asked about what alternative investments they would make, 26.3 per cent of respondents said they would invest in property.

If the decision was followed through, it could mean an average of Bt18.67 billion a year could be spent on real estate.

Over five years that shift may amount to Bt93.29 billion.

The second most favoured product backed by 17.7 per cent of respondents was government bonds.

About Bt12.59 billion a year over the next five years are expected to go into these bonds.

Gold came in third, favoured by 12 per cent of respondents.

About Bt42.71 billion over five years is expected to buy the precious metal.

The fourth vehicle is mutual funds. About 9.2 per cent of respondents said they would favour them. Some Bt32.60 billion could be parked in such funds in the next.

The fifth instrument is stocks. About 5.7 per cent of respondents said they would shift some of their cash into equity. About Bt20.23 billion from savers could pour into the bourse during this period.

Some 3.2 per cent of respondents said they would buy debentures.That

 could mean Bt11.24 billion would flow into such paper.

About 2.8 per cent of respondents said they would buy assurance, meaning Bt10.12 billion could be headed for this sector.

The rest, some 23 per cent (Bt82 billion), may go to other forms of investments.