B/E holders seek early redemption

The Deposit Protection Agency (DPA) and Bank of Thailand have closely monitored the behaviour of both commercial banks and their customers, Singha Nikornpun, president of the DPA, said yesterday.

Previously, banks sold papers, such as bills of exchange to depositors as the banks wanted to minimise payment of the 0.4 per cent fee charged on deposit base and collected by the Financial Institutions Development Fund (FIDF), Singha said.

However, the financial crisis in the US has sparked fear among bills of exchange holders, because the DPA would not protect depositors who switch to hold this type of assets in case of a bank collapse. They have, of late, rushed to banks seeking redemption before maturity, he said. Banks do not want money flowing out, and they have persuaded customers to switch to cash deposits.

"We may in the future consider extending deposit protection to include debt instruments to prevent banks from avoiding paying the full fee to the DPA," he said.

The DPA may also in the future change its method of fee collection from a 0.4 per cent flat rate to a risk-based basis. The fee rate would vary among financial institutions and high-risk ones would be required to pay a higher fee.

The deposit protection began operation last month but it is in the process of transferring assets from the FIDF. It is also waiting for official approval from the Finance Ministry to allow it to collect fee from financial institutions.

Depositors in the first year would be fully protected by the DPA. Protection would be cut to Bt100 million in the second year, then down to Bt50 million, Bt10 million and Bt1 million per passbook and per bank in the later years.

After five years, only 1.5 per cent of depositors who deposit more than Bt1 million per bank, would not be fully protected. The DPA does not foresee problems for small banks, as the rich would diversify their deposits to all banks in order to seek maximum protection.

Singha said the DPA would not step in to help depositors unless a bank collapses. The DPA has two important tasks: managing investment portfolio and closely make risk assessment on banks.

Singha was former deputy secretary-general of the Government Pension Bank. He used to work at Deutsche Bank Bangkok office, Nakhon Thon Bank. He also has experience in the insurance industry.

He added that the impact of the financial crisis in the US would have little impact on the local banks.