Your Money - Tuesday December 18, 2007
BANKING / INTEREST RATES
Bills of exchange a new choice for depositors
Several local commercial banks have begun offering bills of exchange (B/E) as another investment choice to attract depositors who are likely to be affected by the new Deposit Insurance Act, says Anurak Tantipipattana, vice-president of retail deposits and fee product management at Kasikornbank.
The Act, expected to be approved by the National Legislative Assembly this month, will replace the blanket guarantee on bank deposits over a five-year period. Starting in the second year, insurance coverage will be capped at 50 million baht per account per financial institution. The amounts will drop to 25 million and 10 million baht in the third and forth years, respectively, until coverage is limited to only one million baht starting from the fifth year.
''Since smaller amounts of money kept in banks will be insured by the [deposit insurance] agency in the future, depositors are now seeking to put their money elsewhere,'' Mr Anurak explains, noting that interest rates are also likely to resume an upward trend.
According to Narumol Meksingvee, head of the funding department at ACL Bank, the most popular terms for bills of exchange in the market are three and six months. However, banks would prefer to attract longer-term funds and are offering quite attractive interest rates as a result.
Ms Narumol says that ACL has had good response to its new B/E Smart, with an annualised interest rate of up to 4% for those who hold the investment until maturity, which is 20 months.
''We've already received a total of one billion baht since the launch . Our actual target for all B/E products is 20 billion baht, and most of the clients are depositors.''
Currently the competition in the market is quite fierce, she admits. The reason is that banks are competing with equally attractive non-bank products such as fixed-income funds offered by mutual fund companies.
One advantage of fixed-income funds is that capital gains are not taxed, while holders of B/E are obliged to pay 15% tax on the interest they earn.
KBank, meanwhile, is promoting its K-B/E Investment with annualised interest rates varying between 2.75% and 2.8%.
Mr Anurak believes that given the rising competition, banks will move beyond bills of exchange to other products. For example, in the future there could be structured deposits that link returns to the SET index.
''This kind of product is quite common in foreign markets. However, it's going to take some time to educate Thai investors since it's brand-new here,'' he said.