Small banks to continue offering bills of exchange
Small banks will continue to offer bills of exchange even though B/Es have lost some of their advantages over deposits, as there is still demand for them.
All banks will have to contribute 0.46 per cent of their B/Es to the servicing of the debt of the Financial Institutions Development Fund (FIDF) and require a minimum purchase of at least Bt10 million per B/E.
B/Es are becoming an instrument for a niche market. Banks still market the product to serve investors, especially institutional investors, who prefer holding B/Es rather than deposits because of the convenience.
Tisco Bank, which is wholly owned by Tisco Financial Group, is a major issuer of B/Es. It will gradually reduce B/Es this year to 30 per cent of total deposits from 75 per cent after seeing a clearer picture of the premium charged for the FIDF, Oranuch Apisaksirikul, CEO of Tisco Financial Group, said last week.
Tisco Bank cannot offer B/Es with a higher interest rate than fixed deposits like before, but it still sells B/Es because there is demand from investors, especially institutional investors.
B/Es are expected to serve a niche market because there are investors who understand the benefits of holding them.
“We will still offer B/Es as long as customers require the product,” she said.
Even though banks will face a higher cost of funds from paying premiums, the reduction of corporate income tax to 23 per cent this year can help offset the higher cost of funds.
Land and Houses Bank (LH Bank) is another small bank that still issues B/Es and has no plan to cut back. B/Es account for 62 per cent of its funding.
Sasithorn Pongsathorn, president of LH Bank, said B/Es remain a choice for investors looking for the convenience of holding them rather than focusing on interest rates.
Previously small banks used pricing for both deposits and non-deposits to beat larger banks, so the gap in the rates of both products was not that wide. The fee contribution of B/Es will not significantly impact the rates offered to customers.
Somjate Moosirilert, president and CEO of Thanachart Bank, said the bank might offer B/Es to a few investors as there is still some demand, but it will not focus on the product as much as before after B/Es became subject to the premium of 0.46 per cent. Before, the premium was not levied on B/Es.
“When the rate is not attractive, we have to seek other financial instruments to offer to customers instead of B/Es,” he said.
Subhak Siwaraksa, president and CEO of CIMB Thai Bank, said the bank plans to market structured products instead of B/Es. However, B/Es might not be entirely phased out from the portfolio because institutional investors need the product for greater flexibility.
Oranuch of Tisco said the bank’s loans in the first two months had expanded from the end of last year, especially hire purchase and corporate loans, which is a good sign for the economy. The situation is expected to return to normal early next quarter instead of the third quarter as had been expected, she said, referring to the recovery from last year’s flooding.
Sasithorn of LH Bank said the bank would focus more on corporate loans by participating in syndications with other banks.
