Banking Deposits Insurance - The Deposit Insurance Bill
(Updated May 2016)
Major update to the content below :
The Thai government (cabinet), on 26 April 2016 has decided to extend the deposit protection in view of 'uncertain economic conditions'. Up to 10 August 2016 deposits are protected up to 25 million baht.
Thereafter, protection will be in place for 15 million baht in deposits between Aug 11, 2016 and Aug 10, 2018; for 10 million between Aug 11, 2018 and Aug 10, 2019; for 5 million between Aug 11, 2019 and Aug 10, 2020; and for 1 million by Aug 11, 2020.
We think, the underlying problem remains : while even 'financial experts' can not predict with certainty the financial stabilitiy of individual banks, why ask the general public to have this capability? [we do not suggest protection for the total of massive deposits, those with a lot of money have ways of being protected ; however, insurance up to 'only' 1 million baht, affects anyone who may belong to the lower middle class]
However, we feel somewhat vindicated, that changes have been made. Maybe someone read our comments about this issue?
About Thai Banking Deposits Insurance
Apparently since the Asian economic crisis of 1997, bank deposits at Thai banks were fully insured.
A few years ago, a so-called extraordinary House panel of the National Legislative Assembly, changed this policy and proposed to offer only limited government insurance for deposits at Thai (private) banks.
The original proposal was as follows :
A blanket guarantee of deposits in the starting year, Bt100 million per person per bank in the second year, Bt50 million in the third, Bt20 million in the fourth and Bt1 million in the fifth, which started somewhere in the middle of 2012.
So starting in 2012 only limited deposit insurance coverage would be available. At an exchange rate of around 32 for one dollar, one million baht is about 31,000 US dollar now (2014), and we must assume that quite a few local residents and foreigners staying in Thailand will have a larger nest egg.
However, the original proposals got delayed by a government decree in 2012. In 2014, the amount covered by insurance still amounts to 50,000,000 baht. Deposit guarantee will be decreased to 25 million baht mid 2015, and to the tiny amount of 1 million baht (per bank) in 2016. An analysis by TMB Analytics estimates that 80% of deposit will become unprotected in 2016.
To be on the safe side, customers will need to open bank accounts with different banks, if they want to have all or at least a substantial amount of their deposits covered. This creates redundancy and inefficiency, inconvenience to customers, and larger overheads for banks (probably passed on to customers). A reduction in bank deposit insurance coverage also creates less trust in the banking system overall.
The law in its present form assumes that customers can make the right decisions, only depositing their money with banks that are solvent and reliable. However, this is a fallacy, since even well educated economists and experts in the field (as judged by the 2008 financial crisis) are not capable of adequately judging the solvency or good management of banks.
Figures provided by TMB Bank in March 2012 indicated that more money was flowing into the government banks. The Finance Ministry is the major shareholder of these banks, and would be liable to provide a blanket guarantee agains bankruptcy. Government include banks such as the Government Housing Bank, and the Government Savings Bank. Branches are few and between, but can be found in Bangkok and around Thailand. These bank do not offer all the services provided by commercial banks. Your money though should be safer with them.
So our advice is : deposit the bulk of your assets with government banks, and have a current account or savings account with a commercial bank for daily expenses.
Deposits Protection Agency (DPA)
How are deposits guaranteed? A so-called Deposits Protection Agency (DPA) has been established, that collects money from banks, at a rate of 4 baht per 1,000 baht deposited (0.4%). That actually is a big chunk of money. Of course, banks pass the costs to customers (lower deposit rates, and/or higher lending rates).
As of the beginning of 2012, the Deposits Protection Agency, had accumulated 80 billion baht. However, even the smallest of banks in Thailand likely have more deposits.
Some kind of problem has arisen early 2012. As part of a goverment decree, the premiums going into the Deposits Protection Agency, were slightly increased, and also the government banks needed to pay up, to avoid unfair competition between private and government banks.
However, premiums paid by the private banks, will be mostly used to pay off governmental debts, incurred at the time of the bail-out of financial institutions during the 1997 crisis. What it means then basically, is that there is actually only a token fund to cover a run on deposits. In time of a crisis, the government will have to create funds itself in some different way.
Source : reports in Thai media, especially the Bangkok Post.