Discretionary treatment 'puts BOTpolicy at risk'

The authorities should take great care in ensuring the fairness of the financial system to sustain the efficient and credible operation of the monetary policy of the |Bank of Thailand, bankers said yesterday.

Siam Commercial Bank's executive committee chairman, Vichit Suraphongchai, said the additional deposit fees to be levied on banks following the transfer to the central bank of the debts of the Financial Institutions Development Fund (FIDF) should not create a discrepancy in the treatment of commercial banks and state-run banks.

As things stand, the government will require commercial banks to contribute fees on deposits to help pay off the FIDF interest burden. State-owned banks will be excluded, though.

The Finance Ministry is well aware of the potential implications given the current liquidity of private and state-run banks, he said.

The government is expected to resolve the discrepancy after seeing the reaction of commercial banks, through both the Thai Bankers Association's statement about the effect of the FIDF debt transfer on its members and their not cutting their rates even when the Monetary Policy Committee reduces the rate.

Monetary policy is important to the operation of financial institutions, and all private banks are ready to respond to the central bank's monetary stance, but banking liquidity is also crucial given that the state-run banks are able to raise massive deposits, Vichit said.

As the central bank cannot oversee the state-run banks, the authorities must ensure fairness in the system between the two types of banking entities to sustain an efficient monetary policy, he added.

Krung Thai Bank president Apisak Tantivorawong said that if state-run banks, regulated by the Finance Ministry, were not required to pay a higher fee to contribute to FIDF debt repayment, the BOT would not be able to effectively influence the market through its monetary policies.

He expressed concern that commercial banks may not cut their rates even when the MPC reduces the policy rate. When the rate was cut late last month, only Krung Thai Bank and TMB Bank cut their rates accordingly. This implies that other banks cannot afford to cut the rates they offer, as doing so would mean the flight of deposits.

The issue of the BOT's monetary policy was discussed at the Thai Bankers Association conference yesterday, with commercial banks expressing their concern that monetary policy might lose effectiveness in influencing the market if state-owned banks are excluded from the requirement to pay higher fees to the Deposit Protection Agency.

Apisak said commercial banks would be willing to contribute extra deposit fees if their state-owned counterparts were required to do the same, given that they face stiff competition in deposit mobilisation from state-run banks. The latter's market share for deposits has risen to 30 per cent.

Deputy Prime Minister and Finance Minister Kittiratt Na-Ranong said his ministry was looking at the discrepancy between commercial and state-run banks.

The Thai Bankers Association yesterday proposed two options to the BOT on how to deal with the FIDF interest-repayment burden, which amounts to Bt68 billion in the current fiscal year. Apisak did not reveal the options, but said bankers had discussed the duration of the fee hike. If the rate is high, the period should be short, he said.

"The maximum fee should not exceed 0.6 per cent, against the current 0.4 per cent, while the period should be 25 years," he added.

Bangkok Bank executive chairman Kosit Panpiemras said that in his personal view, the bank could not cut interest rate even though the policy rates were cut twice. The rate now is 3 per cent.

"I think the bank wants to make sure the new fee collection will not lead to discrepancy between private banks and government banks. If we see a clear picture, we will decide about the rate adjustment again."