Banks forced to shift focus in wake of cut in deposit protection limit

 

The lowering of the deposit protection limit is in line with the related deposit protection law.

Deposits over Bt25 million are frequently seen in small-sized banks as they offer higher returns than large and medium-seized banks. 

However, small-sized banks said that although the deposit protection will be reduced, customers are confident in the strong financial status of the banking industry and returns on investment are key to asset allocation.

Land and Houses Bank (LHBank) has prepared to deal with the lower deposit protection since the beginning of the year by focusing on customers with deposits of Bt1 million, said Chutamas Sombunyaviroj, first senior executive vice president of the bank’s Commercial Banking Marketing Group.

LHBank has increased the number of its micro branch outlets at HomePro Stores nationwide while several other banks have slowed branch openings. LHBank wants to expand its customer base from those with high net-worth to retail affluent to acquire depositors who have deposit of Bt1 million, Chutamas said. So far this year, around 10 per cent of new deposits have been deposits of Bt1 million. Outstanding deposits in the first half of this year totalled Bt130 billion.

Chutamas said that the lower deposit protection would not affect wealthy clients as they were usually familiar with asset management and several customers have allocated their money to the capital market.

Unattractive returns for deposits have prompted wealthy customers to allocate deposits to mutual funds and debentures, which the bank offers to fill the requirements of customers. The bank is able to increase its fees by offering more investment products to customers and the lower deposit protection helps the bank to increase the number of products to attract more customers, she said.

Kiatnakin Bank said depositors with deposits of more than Bt25 million represent 19 per cent of its total deposit base and those customers account for 0.6 per cent of the total depositor base. 

Aphinant Klewpatinond, president of the bank, said the bank did not see any unusual deposit allocations in the run-up to lower protection. However, it will review the impact on customers when the deposit protection is cut to Bt1 million per bank on August 11 next year.

Wealthy depositors have also adjusted their savings and investments. In the past 2-3 years, the bank adjusted the structure of deposits by focusing more on retail depositors, putting the proportion of current and savings accounts (CASA) at 48.2per cent of total deposits. 

“The interest rate downturn in the Kingdom has encouraged the bank’s depositors to look at alternative investments. The bank has initiated wealth management services like Priority Banking and Investment Banking to meet the needs of customers. 

“Existing depositors have allocated their money to our Kiatnakin Phatra Financial Group through Phatra Securities and Phatra Asset Management, both of which have assets under administration (AUA) of Bt43 billion,” he said.

Chalit Silpsrikul, executive vice president of Tisco Bank, said the bank did not think the lower deposit protection would influence wealthy depositors to move to large-sized banks since the financial status of each bank was strong. 

He said the bank has offered its customers investment products with higher returns than deposits.

The bank has toned down deposits this year in line with the slowdown growth of lending; deposit growth this year is projected only at 1-2 per cent.

In the first six months, Tisco |Bank had outstanding deposits of Bt191.75 billion, down by 10 per cent from Bt213.09 billion at the end of last year.

According to Kasikorn Research Centre, as end of May, about 99.95 per cent of total deposit accounts were protected, as they have amounts of less than Bt25 million in them.

The research noted that the impact from the limited deposit protection should be seen next year when the deposit protection will be reduced to Bt1 million per account per bank in August 11, 2016. 

Around 1.5 per cent of total deposit accounts would not be protected.