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FIDF

FIDF decrees expected to benefit state lenders

Wichit Chaitrong,

Sucheera Pinijparakarn

The Nation

The executive decrees shifting the Bt1.14 trillion public debt left over from the 1997 financial crisis to the Bank of Thailand (BOT) will increase costs for commercial banks, indirectly benefiting state-run lenders, bankers said.

Under the plan to pay down the Financial Institutions Development Fund (FIDF)'s debt, commercial banks will have to pay higher premiums to the Deposit Protection Agency (DPA). The banks will not find it easy to pass the increased costs on to consumers because they face competition from state-run banks, which are not required to pay premiums, Kasikornbank senior executive vice president Somkiat Sirichatchai said yesterday.

The government's plan requires the central bank to collect higher annual premiums from financial institutions, which currently pay 0.4 per cent of deposits to the DPA.

An informed source at the Bank for Agriculture and Agricultural Cooperatives (BAAC) said the bank will likely find it easier to raise funds from depositors if the central bank increases premiums of commercial banks and these costs are then passed on to depositors. "We have been able to raise funds more easily recently, as the DPA is going to reduce deposit protection to only Bt1 million per account [starting from August this year]," he said. The DPA law does not impose fee payments on state-run banks.

Woravit Chailimpamontri, president of the Government Housing Bank (GHB), said he could not assess the impact of the executive decrees relating to the debt-payment plan on the bank until the BOT put in place specific measures.

He said the GHB would participate in a soft-loan package worth Bt300 billion for flood victims when the BOT implements the scheme authorised by executive decree.

About 100,000 of GHB's mortgage holders, with combined loans of Bt70 billion, were affected by last year's flooding, he said. The GHB has allowed them to defer mortgage payments for three to six months, Woravit said.

Praipol Koomsup, an academic at Thammasat University and former member of the central bank's Monetary Policy Committee (MPC), said the government should introduce legislation on the FIDF debt, rather than issue decrees, to give all parties a chance to air their views on the issue.

The House of Representatives should be allowed to discuss the issue, and authority to decide the issue should not rest only with the Cabinet, Praipol said.

He said the details of the FIDF debt plan should clearly state a period over which the principal will be paid down - not only the interest burden.

The decree does not help pay down the principal, which should be of more concern than the interest burden, the academic said.

Finally, customers will face higher costs as banks must pass additional costs on to customers when the FIDF debt is transferred to banks from the Finance Ministry, Praipol said.

In addition, he said, the central bank should cut its policy rate by 25 basis points at the MPC meeting this month.

The policy rate this year should be cut to 2.75 per cent to help maintain the economy, he said.

-- The Nation 2012-01-12