Customers have nothing to fear from premium hike : Kittiratt

Savers and borrowers will not get hit by higher costs when banks start paying more deposit insurance premiums to retire the 1997 financial crisis debt, Finance Minister Kittiratt Na-Ranong said yesterday.

"I believe that banks will not pass the cost on to depositors or borrowers by dropping deposit rates or raising loan rates, because of the higher premiums," he said.

"But they may lower rates because of the central bank's recent policy rate cut," he said.

Kittiratt will meet today with Prasarn Trairatvorakul, the governor of the Bank of Thailand, to discuss further the premiums to be collected from commercial banks.

Kittiratt, who is also a deputy prime minister, indicated that commercial banks will be rewarded by being allowed to increase the level of deposit insurance protection for their customers.

He and Prasarn will also go over the implementation of emergency decrees concerning repayment of the Bt1.14 trillion debt and a soft-loan package worth Bt300 billion.

The central bank will provide 70 per cent of the soft loans for flood victims including households and businesses. The rest would come from state-run banks in the scheme.

"The central bank will decide when and in what amount loans will be offered at each stage," he said.

To pay off the debt owed by the Financial Institutions Development Fund (FIDF), the central bank will collect more premiums from commercial banks.

However, the government has eased their tax burden by slashing the corporate income tax rate from 30 per cent to 23 per cent this year, so their profits would not decrease by paying more premiums.

The government will also reduce significantly the premiums paid to the Deposit Protection Agency (DPA), currently 0.4 per cent of their deposit base, in order to divert money for debt payment.

Some of the central bank's profits would also be used to redeem the FIDF debt.

The premiums for debt payment would be collected from banks starting in July.

The government would increase deposit insurance coverage for commercial bank customers so that there would be a level playing field between commercial and state-run banks.

"It can be done easily without reducing the 100-per-cent guaranteed protection of state banks' depositors," he said in reference to the wide gap in deposit protection.

According to the DPA law, in August the insurance coverage would drop to only Bt1 million per depositor per commercial bank.

But according to laws governing state-run banks, state banks will still provide unlimited protection for its savers and they do not have to pay annual premiums to the DPA. This gives state banks an edge over commercial banks as state banks can offer higher deposit rates or lower loan rates.

Foreign insurers met with Prime Minister Yingluck Shinawatra and Kittiratt last week in Davos, Switzerland to discuss cooperation in providing flood insurance.

"They proposed to work with us after they learned that we will set up a Bt50-billion insurance pool," he said.

The Bt50 billion would be adequate to ensure flood protection for individuals and small and large firms, as the coverage would be as high as Bt1 trillion, or 20 times the size of the fund.

Foreign insurers have refused to take on flood risks from Thailand after the severe inundation last year, unless it involves demanding very high premiums, so the government had to establish the insurance fund to do the job.

The government can explain the executive decrees to the Constitution Court if the Democrat Party files a petition against them.

The decrees may be submitted to Parliament on Wednesday for voting.

Regarding the executive decree to borrow Bt350 billion to finance post-flood construction projects, the government may spend about Bt150 billion this year, mostly for flood-prevention projects, including water storage and drainage systems, in the Chao Phraya River basin.

The flood-prevention plan would cost Bt300 billion for the Chao Phraya basin alone, he added.