While the recent banking debacle in the US and Europe sparked fears about a contagion spreading worldwide, the head of Thailand's Deposit Protection Agency (DPA) said since the agency's establishment in 2008, Thailand has never been close to requiring action to protect deposits.
DPA president Songpol Chevapanyaroj said the agency and the Bank of Thailand cooperate to prevent failures in Thailand's banking system.
The DPA also links its system with financial institutions' back offices, enabling the agency to stay up to date with their finances.
He said there are 32 local financial institutions that are covered under the DPA's deposit protection.
DIFFERENT OPERATIONS
More than 50 small US banks have closed over the past decade, said Mr Songpol.
The collapse in March of Silicon Valley Bank (SVB) and Signature Bank in the US sent shockwaves across global markets. A catalyst for SVB's demise was the Federal Reserve's policy shift from near-zero interest rates to a hawkish rate-hiking campaign, which brought down the value of its portfolio of bonds because of lower returns.
He said the operations of SVB and Thai banks were different in terms of the loan deposit ratio.
SVB allocated a large proportion of its deposits to purchasing long-term government bonds with fixed interest rates, while Thai banks allot most of their deposits to lending, said Mr Songpol.
One risk for a bank that holds a massive amount of bonds is when interest rates rise and a large number of depositors want to withdraw their money, that bank has to sell the bonds before reaching maturity, leading to a steep loss in order to cover its clients' withdrawal requests.
According to Bloomberg, on March 8 SVB's parent company, SVB Financial Group, announced it sold US$21 billion of securities from its portfolio at a loss of $1.8 billion and would sell $2.25 billion in new shares to shore up its finances. Those moves spooked prominent venture capitalists, who instructed clients to pull their money from the bank.
Mr Songpol said the period when the DPA was most concerned with the country's economic and banking system was during the pandemic in 2020-21.
He said for most of that period, Thailand's economic problems were related to internal factors. The agency closely monitored the pandemic situation in 2020.
"Fortunately, despite Thailand's border closures, the country was still able to export and measures by the Finance Ministry and central bank, such as financial aid and debt suspension, were able to mitigate the economic impact of the pandemic," said Mr Songpol.
The country's economy gradually recovered from the impact of the pandemic.
Although inflation is higher than regulators would like, partly attributed to the impact of the Russia-Ukraine war, the overall effect on the country has not been too severe, he said.
The agency is monitoring the economy, although the degree to which these current events have had an effect is not sufficient to warrant the DPA offering deposit protection, said Mr Songpol.
ADEQUATE PROTECTION
He said some people have complained that the maximum DPA level of protection of 1 million baht per person per bank is too low, and should be raised to 25 million baht, or even full protection of all deposits.
Mr Songpol said 98% of depositors at financial institutions have deposits of less than 1 million baht.
The goal of all deposit protection agencies worldwide is the same -- to offer protection to the majority of depositors.
"Given the figures in Thailand, a ceiling protection of 1 million baht provides protection to the majority of depositors," he said.
Financial institutions that are members of the DPA have combined deposits of 20 trillion baht. They contribute 0.01% of their deposits to the DPA's fund, representing more than 1 billion baht per year.
The DPA's fund currently stands at 137 billion baht.
Mr Songpol said under current procedures if a bank ran into financial trouble, it would not be the DPA but rather the central bank that would be the first to act. The central bank would examine the root cause of the problem, while the troubled bank would still be able to operate and its customers would be able to withdraw cash as usual.
If the central bank was unable to solve the bank's problem and it had to cancel the bank's licence, then the DPA would be called in to protect depositors.
Thailand has six banks dubbed "systemically important domestic banks" that jointly account for 85% of all deposits in the banking system.
He said it is highly unlikely a bank failure would happen in Thailand without any warning signs because the central bank closely monitors the country's banking system.
PROACTIVE WORK
The DPA and the central bank have increased the frequency of their discussions concerning the banking system, closely monitoring the system together.
For example, they discussed the central bank's plan to grant virtual banking licences and how it could impact the public, as well as whether the agency would protect depositors at virtual banks.
"We're in a good position. Thailand's economic status is not bad and we have been able to get through the waves of the pandemic's impact," Mr Songpol said.
He said Thai banks operate in strict compliance with the regulations and the banks do not engage in internal fraud or money laundering.
Should a problem occur, the DPA intends to pay depositors in less than 30 days, even though 30 days is the time frame allowed by law, said Mr Songpol.
STRONG POSITION
The central bank reported recently the financial position of the commercial banking sector remains strong.
At the end of 2022, the country's commercial banks had a capital adequacy ratio of 19.4%, higher than the minimum requirement of 8.5%, a liquidity coverage ratio of 197%, and a non-performing loan (NPL) coverage ratio of 172%.
The NPL ratio stood at a low level of 2.73%.
The current position of local banks is better than during the 2008 global financial meltdown, according to the central bank.
Krungsri Research reported the banking system's capital adequacy ratio at the end of 2022 was No.2 within Asean after Indonesia.
Jindarat Sirisithichote, associate director of financial institutions at Fitch Ratings (Thailand), said recently Fitch expects Thai banks' earnings to improve gradually in 2023 on declining credit costs and stronger loan growth.
Even so, pressures would persist on asset quality as relief measures expire and banks gradually clear their backlog of restructured loans.
Thai banks continue to maintain strong buffers against downside risks. Fitch also expects Thai banks' liquidity to remain broadly stable because they are mainly funded by deposits, with no significant dependence on wholesale or foreign funding.
