Thai banks forced to shift focus after deposit rule change
The move to lower the deposit protection limit from 50 million baht (US$1.42 million) per account per bank to 25 million baht per account per bank, which takes effect tomorrow, is not expected to affect wealthy depositors, who can take up investment products offered by banks.
The lowering of the deposit protection limit is in line with the related deposit protection law.
Deposits over 25 million baht are frequently seen in small-sized banks as they offer higher returns than large and medium- sized banks.
However, small-sized banks said that although the deposit protection will be reduced, customers are confident in the strong financial status of the banking industry and returns on investment are key to asset allocation.
Land and Houses Bank (LHBank) has prepared to deal with the lower deposit protection since the beginning of the year by focusing on customers with deposits of 1 million baht, said Chutamas Sombunyaviroj, first senior executive vice president of the bank’s Commercial Banking Marketing Group.
LHBank has increased the num- ber of its micro branch outlets at HomePro Stores nationwide while several other banks have slowed branch openings. LHBank wants to expand its customer base from those with high net-worth to retail affluent to acquire depositors who have deposit of 1 million baht, Chutamas said. So far this year, around 10 percent of new deposits have been deposits of 1 million baht. Outstanding deposits in the first half of this year totalled 130 billion baht.
Chutamas said that the lower deposit protection would not affect wealthy clients as they were usually familiar with asset management and several customers have allocated their money to the capital market.
Unattractive returns for deposits have prompted wealthy customers to allocate deposits to mutual funds and debentures, which the bank offers to fill the requirements of customers. The bank is able to increase its fees by offering more investment products to customers and the lower deposit protection helps the bank to increase the number of products to attract more customers, she said.
Kiatnakin Bank said depositors with deposits of more than 25 million baht represent 19 percent of its total deposit base and those customers account for 0.6 percent of the total depositor base.
Aphinant Klewpatinond, president of the bank, said the bank did not see any unusual deposit allocations in the run-up to lower protection. However, it will review the impact on customers when the deposit protection is cut to 1 million baht per bank on Aug. 11 next year.
Wealthy depositors have also adjusted their savings and investments. In the past 2-3 years, the bank adjusted the structure of deposits by focusing more on retail depositors, putting the proportion of current and savings accounts (CASA) at 48.2 percent of total deposits.
“The interest rate downturn in the Kingdom has encouraged the bank’s depositors to look at alternative investments. The bank has initiated wealth management services like Priority Banking and Investment Banking to meet the needs of customers.
“Existing depositors have allocated their money to our Kiatnakin Phatra Financial Group through Phatra Securities and Phatra Asset Management, both of which have assets under administration (AUA) of 43 billion baht,” he said.
Chalit Silpsrikul, executive vice president of Tisco Bank, said the bank did not think the lower deposit protection would influence wealthy depositors to move to large-sized banks since the financial status of each bank was strong.
He said the bank has offered its customers investment products with higher returns than deposits.
The bank has toned down deposits this year in line with the slowdown growth of lending; deposit growth this year is projected only at 1-2 percent.
In the first six months, Tisco Bank had outstanding deposits of 191.75 billion baht, down by 10 percent from 213.09 billion baht at the end of last year.
According to Kasikorn Research Centre, as end of May, about 99.95 percent of total deposit accounts were protected, as they have amounts of less than 25 million baht in them.
The research noted that the impact from the limited deposit protection should be seen next year when the deposit protection will be reduced to 1 million baht per account per bank in Aug. 11, 2016.
Around 1.5 percent of total deposit accounts would not be protected.