Fund investors set to receive protection

Fund investors set to receive protection
Bangkok Post (11 October 2007)

New law expands deposit insuranceInvestors in local mutual funds or savings co-operatives will also be protected under the new Deposit Insurance Act, according to Krisada Uthayanin, a deputy director of the Fiscal Policy Office. Unitholders in a mutual fund, for instance, would receive compensation as a proportion of the fund's total deposit in a financial institution. Mr Krisada, speaking at a seminar at the Stock Exchange of Thailand, said depositors would have several years to adjust their savings and investment strategies. The new law, currently under review by the National Legislative Assembly, would replace the blanket guarantee on deposits that has been in place since the 1997 crisis. Deposit insurance would drop to 50 million baht in the second year after the law is approved. Then it would fall to 25 million in the third year, 10 million in the fourth year and one million in the fifth year. Mr Krisada said the one-million-baht maximum was per person, per financial institution. ''Also remember that it doesn't necessarily mean that depositors with more than one million baht at a bank will only receive one million. They can receive more once the Deposit Insurance Agency takes control and settles accounts for that financial institution,'' he said. Ruchukorn Siriyodhin, director of the Bank of Thailand's project management office, said the one-million-baht limit would cover 98.57% of depositors in the financial system. Only 700,000 accounts had balances that would not be fully covered by the initial payout, she said. Mrs Ruchukorn said protection under the law was high compared with other countries. Singapore offers deposit insurance of just S$20,000, or 0.45 times per capita gross domestic product, while Hong Kong offers protection of HK$100,000, or 0.49 times per capita GDP. Countries such as the US, Canada, Japan and South Korea offer protection of two to three times per capita GDP. ''Thai coverage is about 8.3 times per capita GDP, ranking only second to Indonesia, which has coverage of 9.42 times per capita GDP,'' Mrs Ruchukorn said. The DIA act would cover baht-denominated accounts opened with both foreign and Thai banks, credit foncier and finance companies, she said. Deposit protection would be expanded to other institutions at a later stage. The new Deposit Insurance Agency would be responsible for paying out deposit insurance and supervising ailing financial institutions. Banks would pay a premium of 0.4% of total deposits to the DIA each year, a similar charge to what is now paid to the central bank's Financial Institutions Development Fund. Premium payments to the DIA are estimated to amount to 20 billion baht annually. Sirimas Watanachoti, a deputy secretary-general of the Thai Bankers Association, said local banks were concerned that all financial institutions, including specialised state-owned banks, would be treated similarly under the new deposit insurance law. ''We are worried about issues of competitive fairness, and how to communicate to depositors effectively to prevent panic withdrawals once the act is implemented,'' she said. The perception that deposits at state banks were safer than those at private banks could distort the market. Bankers are also concerned that insurance premiums do not reflect the different risks of each institution. Mrs Sirimas said financial institutions should not have to subsidise weaker institutions.