High deposit fees could push banks towards Europe-style financing: KTB boss

“Thailand’s risk is likely to approach that of some countries in Europe that are facing a financial crisis from mobilising 70-80 per cent of their funds from financial instruments,” he said.
The comment came before Finance Minister Kittiratt Na-Ranong was due to meet with Bank of Thailand Governor Prasarn Trairatvorakul in the evening to discuss further the premiums to be collected from commercial banks.
 

The Thai financial system is stable because local banks tend to use deposits as the source of funds for lending – unlike in foreign countries that depend more on issuing
financial paper, he said. If the cost of deposits rises from the emergency decree aimed at paying debt left over from the bail-out of financial institutions after the 1997 crisis,
banks might seek funds from financial instruments. This would mean that the Thai financial system was moving towards what financial houses overseas do.
 

Policy-makers should carefully consider the repercussions of this policy on the whole financial system, Apisak said. If banks cannot carry the rising cost, they must pass it on to customers.
The plan to use deposit fees to pay the interest on the liabilities of the Financial Institutions Development Fund is workable – but only if the levy is not increased to the point
that it will hurt the financial system, he said.
 

KTB is the first bank to react to the BOT’s policy-rate cut last week by slashing its savings interest rate by 0.125 percentage point and minimum retail lending rate (MRR) by
0.125 point, effective yesterday.
 

Apisak said the bank would suffer a loss from the move because it has more MRR loans than savings. However, the bank decided to cut the deposit rate in line with the policy
rate and persuade customers to use its MRR loans.
 

Even if savings are half of total deposits, they are short- term deposits unlike fixed deposits, which affect fund reallocation, he added.

Chartsiri Sophonpanich, president of Bangkok Bank, said the bank was considering cutting interest rates on both deposits and lending. Regarding the decree, Chartsiri – who is also chairman of the Thai Bankers’ Association – said the association would wait and see the final conclusion from last night’s meeting between the BOT and the Finance Ministry.

The central bank has not arranged a new schedule with the association to discuss the deposit fee, he said.