Thailand’s Deposit Insurance Law: Recent Changes and How They Can Affect You
By Dr. Andrew M. Goodman
17 February 2011
What Can You Do with Your Money: Key Issues to Consider
Here are some specific actions that may be taken to cope with these changes and some issues to consider:
• Balance your assets between capital and banking markets. Capital markets may have protections of their own, and will tend to pay more for increased risk (Spaulding, 2005)8. Realize that lowering the amount of deposit insurance, in fact, increases your risk, so you should re-allocate assets to account for this. The capital markets generally reward increased risk, and may well be appropriate depending on your investment objectives.
• Spread your deposits over several banks to minimize the risk, and decrease your exposure in any one bank (remember these must be different banks, multiple branches of the same bank do not count) to below or possibly slightly above the million baht threshold. Banks abroad outside of Thailand : Western countries have greater bank insurance protection. The US 's FDIC currently guarantees deposits of up to $250,000 USD per insured bank.
• Consider investing excess funds in a business of your choosing in an area in which you have some knowledge or expertise. Managed well, this can pay great dividends and puts the risk in your own hands, increasing both control and the feeling of autonomy.
• If in a provident fund with more than one, or even several million baht invested, evaluate its management very carefully. If there is a large employer portion, such as 50%, it may not be worth cashing out, especially given the high tax penalties, however you certainly need to keep a closer watch on management of the fund, given these changes. Provident funds are protected within the one million baht threshold if they are held in one of the financial institutions covered by the Act. The risk arises beyond this amount. Often, employers may provide protection beyond this million baht threshold, and this would be something to verify with the particular employer in question.
• Consider investing in real estate, as there are still a number of markets outside of the Bangkok area that are undervalued, and you may well be able to take advantage of land value appreciation as well as relatively low risk, with this type of investment.
• Manage assets within your family, since each person is counted separately for insurance purposes, assets can be put into banks under children's or spouses names, to stay under the one million baht ceiling for each person.
• Effect on expatriates and Thai foreign couples: Since the Act makes no distinction between nationality or place of residence in determining coverage; the same rules will apply to these investors. The protection threshold of one million baht per bank is maintained in either case.
• Why deposit in a Thai bank? In light of the US banking crisis, Thai banks, and other banking systems in Asia , have instituted policies aimed at stabilizing the sector. Pomerleano, in an extensive study, rated the capital adequacy, asset quality, management, earnings, and liquidity of the region's banks as basically sound9. Given this, there is no reason to desert Thai banks, though reasonable precautions, as with any investment decision (and as discussed above) need to be followed.
The key is to look at these changes in a positive way and respond to the challenge with effective money management now and in the future.
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8. Spaulding (2005) Capital allocation between a risk free asset and a risky asset, see http://thismatter.com/money/investments/capital-allocation.htm
9. Pomerleano, M. (2009) What is the impact of the global financial crisis on the banking system in East Asia ? ADBI Working Paper 146, Tokya: Asian Development Bank Institute. See, http://www.relooney.info/SI_FAO-Asia/Asia_13.pdf
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