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Thailandís Deposit Insurance Law: Recent Changes and How They Can Affect You
By Dr. Andrew M. Goodman
   

17 February 2011


The Deposit Insurance Act BE 2551 (2008) which came into force on the 11 th of August 2008 is the act which covers Thai protection provisions that relate to investor deposits at banks and other financial institutions. The protection of deposits is an ongoing concern for all investors large and small, and is becoming more and more of a concern in light of the multiple bank failures in the US and Europe over the past three years. The protection of deposits in a time of financial earthquakes, which seem to surround us on all sides, is of eminent concern. In Thailand , back in 1997, a number of banks, including Siam City bank, failed as part of the regional economic crisis of the time. The government responded by nationalizing the banks. When this happens, normally deposits are protected. Single bank failures usually will not result in nationalization, however, so this cannot be counted on as a general response of government to bank failure.

For the purposes of the general investor, meaning any of us living in Thailand or holding funds in a financial institution here, the key item in the Act concerns the amount of protection per depositor and per bank. Since the Act came into place and through the 10 th of August 2011, the full amount of each deposit is covered. Because of this, it was not necessary to worry over where funds are placed, or how they are distributed between accounts. Whatever the amount deposited, you were covered. Period. Taking effect 11 August 2011 until 10 August 2012 , the coverage drops to 50 million baht per depositor per bank. For most of us, this is still quite a comprehensive coverage amount.

The concern is going forward from 11 August 2012, just a little over a year away, when only 1 million baht will be covered by government protection. The implications of this change are significant, especially when one looks at how the coverage will apply. Multiple branches of the same bank will count as one deposit and will be lumped together. Though married couples will receive protection on a per person and per account basis of up to 1 million, separately, in the event of their owning a joint account, protection will not be separated out for that account. In most cases, the money will be split and counted against the individual account of each spouse. This means that management of funds across varied institutions may become a need for many depositors. The chart below illustrates this.

Depositor One

 

Bank A, Branch 1

1,000,000

Bank A, Branch 2

1,000,000

Act insures

1,000,000

Act does not insure

1,000,000

Depositor Two

Bank C

1,000,000

Bank D

1,000,000

1,000,000 +

1,000,000

= 2,000,000

0

Depositor Three (who is married to Depositor Four, with 750,000 in a joint account, Bank A)

Bank A Br. 1

(own account)

900,000

 

Bank A, Allocation from joint account, 375,000

 

900,000 plus 100,000 of allocation from joint account, = 1,000,000

275,000 of allocation from joint account

A myriad of factors will need to be looked at carefully in light of this Act and these will vary according to the individual needs and prerogatives of each investor. It is significant to recall to mind that just because an individual may have investments over the insured amount, as in a provident fund where one may have been employed for a number of years, it does not mean that there is no protection at all for amounts over one million baht. This is not the case. These amounts may still be covered; however, such coverage would come because of liquidation proceedings in the event of a bank failure and would normally be the result of a court proceeding following the failure of the financial institution. Needless to say, compared to receiving the DPA insured one million baht, this process can well be quite lengthy and in any case the amount reimbursed to the investor will often be much less than 100% of deposits and accrued interest.

A further issue is the whole idea of who has claim in the event of a bankruptcy proceeding. In Thailand , the Bankruptcy Act B.E. (A.D. 1940) provisions would apply here. Sections 94 and 95 of the Bankruptcy Act provide that a secured creditor, meaning one who has a legal claim to an asset of the bank as part of the debt for security purposes, would receive prior consideration. Depositors, who are considered as unsecured creditors of a bank, would receive a lower priority and may not be re-imbursed depending on the gravity of the bank failure. Again, as noted above, this process would be time consuming, and it may be years before a depositor saw his or her funds, if ever. All of this assumes that no government intervention occurs. For practical purposes, as with both the Asian crisis in 1997 and the US/European bank crisis of our present time, it is often the case that governments will intervene if there is widespread failure, to restore consumer confidence in the wider economy. Such intervention often includes emergency protection of deposits, since widespread loss of deposits can cause panic, and widen any resulting economic crisis.

Because of these changes, investors will need to look at the probable solvency and corresponding likelihood of failure for any institution into which they plan to deposit funds. This is not always easy to determine, and must be considered on a bank-to-bank basis over time. Further, it will be necessary to look at how assets are distributed, between banks, other types of insurance, and distribution of assets much more carefully in light of these new changes. How do the issues of Deposit insurance fit in with the general investment picture and our needs for asset protection?

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