Plan to extend bank guarantee
Written by Writer on Saturday, October 25th, 2008
Plan to extend bank guarantee
WICHIT CHANTANUSORNSIRI and DARANA CHUDASRI
Thailand will extend the current 100% state guarantee on bank deposits for another three years, Finance Minister Suchart Thada-Thamrongvech said yesterday.
Finance Minister Suchart Thada- Thamrongvech examinessome economic data at a policy meeting yesterday at the finance ministry. NATTHITIAMPRIWAN
He said the ministry would propose to the cabinet on Tuesday extending the current guarantee programme in light of the global economic crisis.
Fiscal spending would also be increased to help stimulate the domestic economy as exports are projected to slow over the next several quarters.
Under the Deposit Insurance Act passed last August, guarantees on bank deposits would be reduced from mid-2009. Coverage would fall to 100 million baht per customer per bank from August 2009 and to 50 million from August 2010. By 2012, deposit coverage would be limited to one million baht per client per institution.
Authorities say this one million baht guarantee is sufficient to cover 98% of the 70 million deposit accounts in the financial system.
But Dr Suchart said extending the full coverage period would help strengthen public confidence in the financial system. Governments across the world have taken similar moves to protect their banking systems and head off potential deposit runs.
With one notable exception, Thai banks have been largely spared panic withdrawals or sharp declines in their asset portfolios as a result of the global crisis.
The special case has been AIG Retail Bank, a unit of US insurance giant AIG. The small local bank was hit by large withdrawals last month due to concerns about the financial health of its US parent, which accepted an $85 billion US government bailout after heavy losses in the credit markets.
Dr Suchart said that moves by local banks to cut back their credit lines due to the economic downturn could raise questions about the stability of the financial system.
Twatchai Yongkittikul, the secretary-general of the Thai Bankers’ Association, welcomed the move by policymakers to extend deposit coverage.
“Many countries, including Hong Kong and Singapore, have taken similar moves even though their financial systems remain strong,” he said.
Charl Kengchon, managing director of Kasikorn Research Institute, echoed this view.
“Thai financial institutions are quite strong,” he said. “This move is really aimed at just putting an additional safeguard on the system from the impact of the global crisis.”
In another development, the Public Debt Management Office said it had revised its budget plans to show a budget deficit lasting until 2012.
Pongpanu Svetarundra, the PDMO director-general, said the deficit is unlikely to rise more than 2.5% of gross domestic product in any one year.
According to the PDMO, public debt for 2009 is projected at 3.905 trillion baht (38.07% of GDP), based on an assumption of debt service payments accounting for 11.19% of the annual budget.
Public debt is projected to rise in 2010 to 4.519 trillion baht (40.79% of GDP) and in 2011 to 4.962 trillion (41.47% of GDP). In 2012 debt is expected to hit 5.374 trillion baht (41.59% of GDP).
Even with higher deficit spending, public finances are projected to remain well under the legal ceiling of public debt of no higher than 50% of GDP.
Mr Pongpanu said the debt projections are based on broad economic forecasts of 9% annual growth in nominal GDP, or 5.5% in real terms after factoring inflation of 3.5%. The forecasts include the government’s 1.8-trillion-baht infrastructure megaproject programme.
Bangkok Post
Saturday October 25, 2008
