DPA to pay part of FIDF interest; banks' contribution to be raised
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Financial authorities have agreed to a plan in which the Deposit Protection Agency will cover part of the interest on debts held by the Financial Institutions Development Fund (FIDF), and are considering increasing commercial banks' contributions to the D
Finance Minister Thirachai Phuvanatnaranubala said commercial banks now contributed 0.4 per cent of their deposits to the DPA. If 0.39 per cent of their deposits, amounting to Bt30 billion per annum, were transferred to the FIDF, this could clear some of its Bt45-billion interest burden, he said.
“We may ask commercial banks to contribute a higher sum to help us cope with the interest payments,” he said after meeting with Bank of Thailand Governor Prasarn Trairatvorakul and Deputy Prime Minister Kittiratt Na-Ranong. Representatives from the National Economic and Social Development Board and the State Council also attended the meeting.
The plan follows an earlier push by Kittiratt to have the FIDF’s Bt1.14-trillion debt be taken over by the BOT. Both Thirachai and Prasarn opposed the move, saying it would automatically boost the central bank’s net loss from Bt400 billion to Bt1.5 trillion and could rock investor confidence in the BOT’s credibility.
The FIDF, the central bank’s financial rescue arm, amassed huge debts after the bail-out of several banks in the wake of the 1997 financial crisis. It is supposed to be dissolved next year.
The DPA was set up to collect contributions from commercial banks to cushion the impact of future crises and make it unnecessary to use public financing to rescue financial institutions in the future.
Thirachai said legal amendments were required to facilitate the plan to give the FIDF the authority to collect fees from financial institutions of at least Bt15 billion per year to help meet its interest payments for a limited period.
That would not put the interest burden on the government’s budget, and if there is some amount left from the interest-payment funds, it will be used to repay the principal gradually, he said, adding: “That will not affect fiscal or monetary discipline.”
The plan will be forwarded to the Cabinet for further discussion, Thirachai said.
Prasarn said the resolution of the FIDF problem must be clear and concrete, and should not require the central bank to print more money, become a fiscal burden or affect the BOT’s international reserves.
“In the initial stage, legal amendments are expected. This is a good sign that the central bank will not have to print money, and should help ease market concerns,” Prasarn said.
Kittiratt emphasised that he had a duty to abide by the Cabinet resolution stating that the FIDF debt should be transferred to the central bank.
Details will be worked out by relevant agencies on the principles of no printing of money, no change in the nation’s international reserves and no budget burden, he said.
He explained that he would oversee the policy while Thirachai examined the procedures. There were many possible procedures and relevant agencies would implement them.
Kittiratt conceded that the law would have to be amended to comply with the resolution, which is expected to be brought before the Cabinet next Wednesday or the week after that.
