(Updated 1012)
We did not really know about it, but apparently since the economic crisis of 1997, bank deposits at Thai banks were fully insured.
For some reason, a so-called extraordinary House panel of the National Legislative Assembly, proposed to offer only limited government insurance for deposits at Thai banks.
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The government gave a blanket guarantee of deposits in the first 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 starts somewhere in the middle of 2012.
A problem starts to arise with the beginning of the fifth year (2012). There will obviously be only limited deposit insurance coverage at that time. One million baht is about 32,000 US dollar now (2012), and we must assume that quite a few residents in Thailand will have a larger nest egg, when retiring or planning a long-term stay in the country.
To be on the safe side, customers will need to open bank accounts with different banks, if they want to have all of their funds and 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.
Possibly the proposed law assumes that customers make the right decisions, only depositing their money with banks that are solvent and reliable. Unfortunately, there is a major flaw in this reasoning. Average customers (and many well educated economists and experts in the field) do not have the knowledge or the data to judge the solvency or good management of their bank.
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We personally think that customers depositing money with their bank, should not be treated this way. At most, a system with limited liability, is acceptable.
Theoretically, with the new law in place, one now can loose the bulk of one's savings overnight with any unexpected crisis.
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There is an important exception to the new rules mentioned above. Government banks do not fall under the new law (as far as we could assess). Government banks include the Government Savings Bank, and the Government Housing Bank. These bank do not offer all the services provided by commercial banks. Your money though should be safer with them. They often give better interest returns on your deposits (although at present with low rates, that is not such an important issue). 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 your daily use.
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). So, in case of an economic calamity and run on the bank(s), ultimately bank customers carry the costs, while potential culprits (banking or governmental policies) may escape unhurt.
As of the beginning of 2012, the Deposits Protection Agency, had accumulated 80 billion baht.
Some kind of problem has arisen beginning 2012. As part of a government decree, it seems, the premiums going into the Deposits Protection Agency, may be increased. The money in the Agency, is to be used (partly of wholly?), to pay off governmental debts (incurred but still largely unpaid after the bail-out of financial institutions during the 1997 financial crisis). Of course, government officials give statements to bank customers, 'not to worry', everything will be fine. But the particulars of the deals done, are not transparent yet.
In any case, this is another reason, why bank deposit rates may stay low, since any additional premiums paid by the banks to the Deposits Protection Agency, will likely result in lower interest rates for depositors. Possibly though, this will result in a significant (unfair?) advantage for depositors at various government banks.
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