The Bank of Thailand (BOT) has no plans to collect higher contributions to the Financial Institutions Development Fund (FIDF) from commercial banks, while expecting the fund to pay off its remaining debt – incurred from bailing out troubled financial institutions during the 1997 Asian financial crisis – within 12 to 14 years.
Somboon Chitphentom, BOT assistant governor for the Financial Institutions Policy Group, said on Tuesday that the commercial banks’ current contribution to the FIDF, at 0.47 per cent of each bank’s deposit base, was appropriate for the fund’s remaining debts of about Bt890 billion.
All banks are required to pay at this rate in the government-initiated move to reduce the public burden in regard to the FIDF’s Bt1.14-trillion debt.
While 0.46 per cent is used to repay the FIDF debt, the remaining 0.01 per cent goes to the Deposit Protection Agency.
“The contribution rate can remain unchanged as the rate is proper although, legally, a rate of no more than 1 per cent can be collected. The [maximum] rate remains at 1 per cent in the draft amendment of the BOT bill, which is being considered by the National Legislative Assembly,” Somboon said.
Amending the Bank of Thailand Act aims to establish a mechanism to solve problems involving the financial-institutions system in replacement of the old mechanism, which has expired under law, as a preparation for problem-solving in advance.
The main principles will consist of conditions to solve several types of problem, including a severe liquidity shortage and large amounts of bad debt, the assistant governor said.
The solutions will be limited especially to crisis-hit financial institutions which affect overall economic and financial stability, Somboon added, insisting that the mechanism would not help a particular financial institution.
Decision-making will be faster and clearer with a balance of power, requiring approvals by the BOT’s Financial Institutions Policy Committee, the finance minister and the Cabinet.
The FIDF will solve the problem, given its experience and readiness, he said.
In regard to the source of funding for solutions, the FIDF can make borrowings from the Bank for Agriculture and Agricultural Cooperatives or other sources with the government's financial guarantee, while contributions to paying off the debt burden will be made by financial institutions in the system afterwards, he explained.
Meanwhile, “We insist the country’s financial institutions remain strong without any problems. At the end of last year, the capital base combined was at 18 per cent, higher than the legal requirement of 8.5 per cent [of total risk assets].
“Besides, the BOT monitors the overall picture to ensure financial institutions’ stability and proper risk management. The [draft] law will not have any [negative] impacts on financial institutions," Somboon stressed.