DPA spreads the word on guarantee cut

DPA spreads the word on guarantee cut

A planned reduction in the ceiling for deposit guarantees to 1 million baht per depositor per bank remains on track for August of next year, says the Deposit Protection Agency.

The DPA has asked its 34 member institutions to inform their depositors with accounts holding more than 1 million baht of the lower guarantee amount to prevent a panic, president Sorasit Soontornkes said.

Some economists have voiced concerns that a cut in the deposit guarantee would dry out liquidity in the commercial banking system, with unprotected deposits likely fleeing to state-owned banks — whose majority shareholder, the Finance Ministry, can provide a blanket guarantee against bankruptcy.

Those with deposits of more than 1 million baht represent no more than 2% of depositors in Thailand.

The maximum deposit guarantee is set to be halved to 25 million baht Aug 11 this year, falling to 1 million baht from Aug 11, 2016 onwards.

Mr Sorasit hailed the stability of local financial institutions, citing banks' aggregate net profit growth of 29.4% to 280 billion baht in 2014, even as credit growth slowed to 4.3%.

Moreover, the banking sector's capital adequacy ratio was high at 16.8% of risk-weighted assets at the end of last year — far above the Bank of Thailand's minimum requirement of 8.5% — and non-performing loans were minimal at 2.1% of loans outstanding.

The DPA has 111 billion baht in capital at its disposal.

The agency's 34 members are required to contribute 0.47% from their outstanding deposits to authorities, with 0.01% going to the DPA and 0.46% going to the Financial Institutions Development Fund to repay debt incurred from bailouts during the 1997 financial crisis.

The 0.01% contribution generates about 1 billion baht a year for the DPA.

Australia & New Zealand Banking Group (ANZ) and Sumitomo Mitsui Trust Bank will become the DPA's newest members by the end of the year.

The two recently won approval from the Bank of Thailand to upgrade their local branches to subsidiaries.

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