Banks hit by proposed solution for FIDF

The sectoral index has plunged12.16 points or 3.26 per cent so far today.

At 3.48pm, Bank of Ayudhya share price slumped the most, by 5.12 per cent from the previous closing. Kiatnakin Bank witnessed the smallest drop, at 1.59 per cent.

Bualuang Securities said in its research note that commercial banks' profits will be cut by 4 per cent for every 0.1 per cent increase in annual deposit insurance fee.

"We estimate that every 0.1 per cent increase will dampen banks' profits by about 4 per cent," it said.
 Banks will find it harder to avoid paying the higher fees, following the Securities and Exchange Commission's recent rule to raise the minimum bill of exchange amount from Bt50,000 to Bt10 million. Small banks which rely on B/E financing would need to raise more deposits or issue more long-term debt instruments. "This will significantly raise their financing cost."
 The research was issued after the government unveiled the plan to empower the Financial Institutions Development Fund (FIDF) in charging fees on commercial banks upto 1 per cent of their deposits. The plan was revealed as the government moved to issue an emergency decree to have the FIDF debts transferred to the Bank of Thailand.

The ultimate goal is to allow the government to borrow more in financing infrastructure investment.

 At present, banks pay 0.4 per cent of deposits annually to the Deposit Protection Agency.

 It anticipates short-term impacts on banking stocks in the next 3-6 months, as the issue is subjected to changes. Still, it maintains the positive view over the banks' long-term fundamentals.