Premium could lead to phase-out
Tisco Financial Group, a major bills of exchange (B/Es) player in the local banking industry, predicts that it might have to phase B/Es out of the market if the product is required to contribute a premium to the central bank for paying off debt of the Fin
At present, unlike deposits, B/Es are not subject to the Deposit Protection Agency (DPA) law that requires banks to contribute 0.4 per cent of their deposits. As a result, B/Es give higher returns than deposit products.
Even though it is still unclear whether it would be mandatory for banks issuing B/Es to pay a premium to the central bank, Tisco chief executive officer Oranuch Apisaksirikul believes payment of premiums will be unavoidable, just like on regular deposits, once the central bank decides it needs the premium from B/Es to help pay off the FIDF debt.
Tisco might be adversely affected by the move because 75 per cent of its Bt180 billion capital comprises B/Es, the highest among commercial banks, while it offers interest rates on fixed deposits higher than other banks.
Oranuch said that there is a high possibility that B/Es would be phased out of the market because the returns would not be different from regular deposits.
Tisco will have to gradually reduce its B/E portfolio and replace them with fixed time deposits to cover the cost of funds.
The move will not have much of an impact on Tisco’s profit and the group has to seek profits from other financial products, including focusing more on retail and SME loans, which offer a healthy margin, Oranuch said.
high profit
Tisco announced net profit of Bt3.26 billion for fiscal year 2011, up from Bt2.88 billion in 2010.
The net profit should be higher than this figure but the banking industry in the fourth quarter was hit by the massive flooding.
Tisco previously revised up its loan growth for 2011 to 20-25 per cent from 15 per cent after loans in the first nine months of 2011 grew by 21.4 per cent.
Maybank Kim Eng Securities (Thailand) expects that if banks issuing B/Es have to contribute a premium at 0.35 per cent, Tisco’s net profit will fall by 11.9 per cent.
