The lowering of the deposit guarantee to Bt1 million from Bt25 million per bank presents a golden opportunity for a small player like Land and Houses Bank to expand deposits by 10-15 per cent annually for several years.
Sasitorn Phongsathorn, president of LH Bank, said the reduction in deposit-insurance was expected to ignite deposit re-allocation of Bt1.13 trillion in the banking system as depositors who will not be covered by the Deposit Protection Act will seek to spread their savings among banks.
The deposit limit applies to an individual’s accounts at one bank.
At LH Bank, Bt40 billion will probably leave, but there’s a chance to attract some of that Bt1.13 trillion that will be looking for a new home.
The bank might launch deposit packages to woo these customers but pricing will not be the key strategy.
LH Bank wants to minimise its cost of funds to compete better, so offering high interest rates for deposits is out of the question.
To secure customers who have to prepare for the new deposit limits, the bank will give importance to those in the provincial market and wealthy clients upcountry.
In the wealthy segment, LH Bank has gained 2 percentage points in its share, a high level for a small bank.
Deposits from upcountry customers are small even though 64 per cent of its 126 branches nationwide are in the provinces.
The stepdown in deposit insurance will help the bank increase its proportion of current and savings accounts to 46 per cent this year from 36 per cent last year as part of managing its cost of funds.
Chutamas Sombunyaviroj, first executive vice president, said savings accounts alone stood at 40 per cent. The bank will focus on this kind of deposit to expand its retail customer base.
Thanyalak Vacharachaisurapol, head of money and banking at Kasikorn Research Centre, said total deposits in Thai commercial banks had reached Bt12 trillion, of which Bt2.7 trillion was from deposits of less than Bt1 million.
The lower deposit limit is not expected to shake up the financial system because banks are still a safe haven for customers who worry about principal protection.
Even after losing protection for deposits over Bt1 million per depositor per bank, they have trust in the stability of Thai banks.
The BIS ratio of Thai banks is much higher than the minimum requirement of the Bank of Thailand.
Stocks and bonds are not the choice of investment right now, Thanyalak said. Even though government savings bonds are also a safe haven for investors, they have to wait for the right timing to invest in this instrument, so banks are still the place for holding liquidity.
For high-return investors, the DPA is not an issue, she said.