Charges on banks 'bad for fiscal discipline'

Premiums from state-run banks to go to development fund, not debt repayment

The additional premium that is to be imposed upon banks will have a negative impact on savers and borrowers, and will also damage fiscal discipline, prominent critics said yesterday.
However, state-run banks said they would not be greatly affected by the decision that they will have to pay a surcharge, while brokers believe there will be only a minimal negative impact on commercial banks' earnings due to the premium rate being lower than had been expected.
Both commercial and state-run banks will be required to pay a new premium of 0.47 per cent of their deposit base, Deputy Prime Minister and Finance Minister Kittiratt Na-Ranong told reporters yesterday.
After discussing the matter with the Bank of Thailand (BOT) and the Thai Bankers Association, Kittiratt said the current fee of 0.4 per cent, which is only imposed on commercial banks, would be increased to 0.47 per cent and would now apply to both types of institution.
The surcharge to be levied on state-run banks will be contributed to a planned national development fund, and will not be earmarked for debt payment, he added.
State banks will have to contribute after commercial bankers asked the BOT and the finance minister to look closely at the issue of unfair competition between the two types of banking entity if only commercial banks were required to pay the premium.
The new deposit fee is in connection the transfer to the central bank of the Bt1.14-trillion public debt incurred by the Financial Institutions Development Fund.
Commercial banks currently pay 0.4 per cent of their deposits to the Deposit Protection Agency (DPA), while state-run banks have until now been exempted from such a levy.
For commercial banks, the bulk of the new fee, 0.46 per cent of their deposits, will be transferred to pay off the debt of the FIDF, while 0.01 per cent will be contributed to the DPA.
Former finance minister Korn Chatikavanij expressed concern over the effect of the measure on fiscal discipline.
"It means the government will set up a fund that it can spend without scrutiny by Parliament," he said. "The planned national development fund is an off-budget spending item, and the government is using the issue of market competition as a pretext to violate fiscal discipline."
Korn added that as the government did not intend using the surcharge from state banks to pay off the FIDF debt, the period of debt repayment would be longer.
He also said the measure would weaken the capacity of the DPA to protect savers.
Sompop Manarungsan, president of Panyapiwat Institute of Technology, said: "New premiums may not significantly increase, but banks are likely to pass the cost on to savers and borrowers." He said savers had long shouldered the inefficiency of the financial system, as they had suffered from a negative real interest-rate return.
Sompop said the government should therefore find another funding source to repay the FIDF debt.
On the positive side, the public may decide to diversify their savings into other investment tools, such as equities, bonds and futures markets, although he said he was unsure whether these markets could accommodate such a shift.
Woravit Chailimpamontri, president of the Government Housing Bank, said the surcharge would not greatly affect the bank.
"Those who put their savings into state banks will still enjoy deposit insurance of up to 100 per cent guaranteed by the government," he said.
However, the new measure could narrow the wide gap between the deposit rates offered by state and commercial banks. The former offer higher rates.






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