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FINANCES

Bank stocks plunge on FIDF debt transfer plan

The Nation

Kittiratt justifies move saying it had become necessary because of situation after floods; Korn questions need for measure when govt was still in a position to borrow Bt2 trillion

Deputy Prime Minister Kittiratt Na-Ranong vowed to press ahead with his initiative to transfer the Financial Institutions Development Fund (FIDF)’s debt to the Bank of Thailand (BOT), despite the central bank’s strong resistance and a tumble of bank stocks yesterday.

In his clarification yesterday of four executive decrees approved in principle by the Cabinet, Kittiratt, who is also commerce minister, said the move is necessary due to the massive funding requirements for rehabilitating the water-management system after the disastrous floods.

While the government can borrow an additional Bt2 trillion before the public debt threshold of 60 per cent of gross domestic product is hit, technically the Finance Ministry cannot allocate more than 15 per cent of the annual budget to principal and interest repayments. Based on the Bt2.38 trillion expenditure for the year 2012, the repayment ceiling is Bt360 billion.

One of the four decrees covering the debt-transfer plan is said to raise the government's borrowing capacity, while the others include a Bt300billion soft-loan scheme and a Bt50billion insurance scheme.

"All four form a single subject, which must be implemented urgently. We have to beat the clock, as the rainy season will return in May. We must have a clear plan and have the finances ready," he said, adding that the legal procedures should be concluded this month.

In Parliament, former finance minister Korn Chatikavanij asked why the government needed to transfer the FIDF debts to increase borrowing capacity, when it can borrow Bt2 trillion more without any change.

Investors dumped banking shares yesterday on anticipation that banks' earnings would be hurt by the higher fees.

Banks now pay 0.4 per cent of the value of their deposits to the Deposit Protection Agency (DPA), set up in 2008 to protect deposits in case financial institutions go under. It came into existence after the FIDF amassed over Bt1 trillion in debt from rescuing financial institutions in 1998. Under the legal revisions, the combined fees collected by the DPA and BOT could be up to 1 per cent of deposits.

Bualuang Securities expects commercial banks' profits will be cut by 4 per cent for every 0.1 per cent increase in the fee. CIMB Securities (Thailand) expected the total impact to be equivalent to 5 per cent of earnings, if no cost is passed to depositors - in other words, if banks pay the higher fees without slowing deposit rate increases. The cost could be higher, as banks are expected to see a larger deposit base as the minimum value of bills of exchange (B/E), which are excluded from fee calculations, is to be raised sharply from Bt50,000 to Bt10 million. Bualuang Securities expects this issue to remain unclear for three to six months.

Songpol Chevapanyaroj, executive vice president of Kasikornbank, said that if banks were to pay a higher premium, depositors would be the most affected as banks will have to delay any possible deposit rate hike on the back of the higher costs. But banks' profits are influenced by many factors, he added.

Kittiratt rebutted the fears.

"Don't worry that the premium will rise or the public will be affected, as the DPA is ordered to lower its fee collection as it has amassed a sizeable amount. The aggregate collection may not rise - or may be lower. Meanwhile, DPA's fund will grow further, but at a slower pace. This will not pose risks to the public. On concerns that banks may push the burden to the general public, the central bank should be able to take care of this," he said.

Bank of Thailand Governor Prasarn Trairatvorakul saw it differently. He was concerned that higher costs could force banks to lower deposit rates or raise lending rates. This would affect their competitiveness and reduce the efficiency of their intermediary role, he said. In the end, it would obstruct the future development of financial institutions, he added.

Prasarn was more concerned that the decree may be in conflict with the Currency Act and the Bank of Thailand Act. A clause in the decree - 70 (3) gives power to the Cabinet over the BOT's assets covering foreign reserves, land and others, which may erode foreign confidence in the central bank, he said.

"We should sit down and talk, if there's time. This is a national issue and needs thorough consideration. The issuance of a decree that contradicts a major law should be avoided. The central bank needs to explain this through the Council of State. We need to make the government see that the option could constitute more loss than gain. We'll do our best," he said.

-- The Nation 2012-01-06

[Pib]

Kittiratt rebutted the fears.

"Don't worry that the premium will rise or the public will be affected, as the DPA is ordered to lower its fee collection as it has amassed a sizeable amount. The aggregate collection may not rise - or may be lower. Meanwhile, DPA's fund will grow further, but at a slower pace. This will not pose risks to the public. On concerns that banks may push the burden to the general public, the central bank should be able to take care of this," he said.

I wish I could understand his rambling. It's the "Don't Worry" part that scares me.

[blackthorn2005]

I look forward to getting a better rate for my Sterling, eventually.