FIDF debt decree unfair: TBA

“That the executive decree specifies only commercial banks for the contribution, not other sources of funds to help support the debt, the TBA [Thai Bankers Association] considered that as an unfair decision which could pose long-term disadvantages to the country,” the TBA said in a statement yesterday.
Referring to a meeting with authorities on January 12, the association said that it favours having the longstanding debt addressed through cooperation from all parties. Members of the association were prepared to lend assistance, on condition that such action must take into account the short and long-term stability of the financial system and must be fairly implemented.
The planned executive decree proposes that the Bank of Thailand take over the FIDF debt from the Finance Ministry. And to help it take care of the annual interest, the central bank will be allowed to raise the premium paid by banks to 1 per cent of their deposits. At present, they contribute 0.4 per cent of deposits to the Deposit Protection Agency.
In the statement, the TBA cited three reasons to back its viewpoint.
First, existing commercial banks had no role in the FIDF debt, incurred more than a decade ago from the rescue of failing banks and finance companies. Though some of today’s banks had asked authorities for financial help, that was repaid. Others had to recapitalise and sell assets.
“It’s untrue and unfair to demand higher surcharges on banks for the reason that they contributed to the debt or benefited from the debt,” it said.
Second, the current premium of 0.4 per cent is considered high compared to other countries, and the highest in Asean. An increase would weaken commercial banks’ competitiveness in the long run. The levy would cripple them on the regional and global stages, in light of further liberalisation.
Third, the larger fee would widen the gap between commercial and state-run banks and worsen the distortion in the financial system. State-run banks are not required to pay anything to the Deposit Protection Agency and with lower costs they can quote higher deposit rates.
State-run banks have enjoyed a surge in deposits recently and they can extend loans in direct competition with commercial banks and against their original objectives. The escalating discrepancy and distortion would exacerbate unfairness and jeopardise the long-term competitiveness of the entire system, the association said.
“TBA is of the opinion that leaving the FIDF debt unsolved would hurt fiscal and monetary stability. We support a fast solution. Yet, dealing with huge debt requires thoroughness and fairness, on how each party should fairly contribute to the scheme, for long-term benefit to the economy. We’re delighted to share the burden with others,” the association said.