FCDs post healthy uptick in 2023
Foreign currency deposits (FCDs) experienced a robust surge last year, driven by enticing interest rates resulting from global interest rate hikes.
As of November 2023, financial institutions that are members of the Deposit Protection Agency (DPA) witnessed a substantial increase in FCDs, with the total value amounting to 812 billion baht, up from 640 billion baht recorded earlier in the year, according to the DPA’s data.
During this period, some local large banks demonstrated an aggressive 50% growth in FCDs per bank.
The strong growth was attributed to the appealing interest rates offered by banks in alignment with rising interest rates worldwide, said DPA president Songpol Cheevapayaroj.
Notably, FCDs denominated in US dollars featured higher interest rates due to the aggressive policy rate hikes by the US Federal Reserve.
According to the Bank of Thailand’s database, large local banks offered 12-month fixed-deposit rates for FCDs ranging from 0.4% to 0.6% per year.
Meanwhile, the interest rates offered by some small to mid-sized banks varied between 3-5% depending on the conditions of the bank.
Besides an alternative to investment, the FCD accounts are used for a variety of objectives. Importers and exporters utilise the deposit accounts to manage foreign exchange risk, while individuals also leverage them for specific purposes.
For instance, parents planning to send their children abroad for education or individuals preparing for overseas trips opt to save via FCD accounts to mitigate foreign exchange risk.
However, depositors need to exercise caution, as FCDs do not fall under the protection of the DPA.
“Despite FCDs lacking DPA protection, it does not pose a significant risk to the overall financial system due to their relatively small portion. Total deposits under DPA protection amount to 16 trillion baht, representing a deposit coverage ratio of 98%, while FCDs stand at 812 billion baht,” he said.
In 2024, the DPA aims to improve depositors’ awareness regarding protected deposit types, encompassing general deposits, digital savings, e-wallets and deposits from emerging virtual banks, Mr Songpol said.
Suwannee Jatsadasak, assistant governor for the supervision group, said the central bank has been also monitoring the positive growth of FCDs, primarily driven by attractive interest rate offerings.
Despite the increased value of FCDs, she said this does not indicate any systematic risks due to the relatively small quantity of FCDs, accounting for less than 1% of total deposits in the banking sector.
Typically, business operators, especially importers and exporters, and individuals with foreign-currency-based income and expenses, opt for FCD accounts to streamline foreign exchange management.
Some depositors view FCD accounts as an alternative investment avenue for better returns and, at the same time, they need to take care of higher risk in foreign exchange, Ms Suwannee said, adding that FCD depositors are often affluent investors with a greater risk appetite.