Some of my views and a few key points to consider when thinking what to do with your THB cash and where to put it are as below:
BanksThe main way I group the banks are: 1) 9 largest commercial Thai local banks 2) "Hybrid" banks which are largely foreign owned but with local bank status 3) Government related banks 4) Foreign Banks 5) The rest
1) 9 main commercial banks (CBs): Bangok Bank/ BBL, Krung Thai/ KTB, Siam Comm/ SCB, Kasikorn/KBank, Krungrsi/BAY, Thanachart/TBank, Thai Military/TMB, Kiatnakin/KK, Tisco.
-BBL, KTB, SCB, K-Bank are considered the Big 4 and are first tier. KTB is weaker but has government shareholdings in it.
-BAY is probably now more accurately a hybrid bank given the takeover, but still tends to get looked at with the locals
-BAY, TBank, TMB, are mid-size. TMB is around 26% owned by Ministry of Finance (MOF) and 25% by ING
-Tisco and KK are smaller banks. KK also being a relative newcomer
2) Hybrid banks: - Stan Chart (SCBT), UOB, CIMB and now probably BAY with effect Japanese ownership. In terms of quality SCBT, UOB and BAY are definitely comparable to the Big 4 Thai local banks. BAY used to be mid-size local, but the takeover puts them now in a higher tier in my view. CIMB is more second tier
3) Government related banks: like GSB/Omsin, Bank for Agriculture (BAAC), SME, Islamic Bank.
4) Foreign Banks: Mainly Citi, HSBC and a couple of Japanese banks, with Citi being most likely for expats after HSBC effectively pulled out of retail banking
5) The rest
Likelihood of individual Thai banks going bust1) 2) The probability of a default from one of the major 9 commercial Thai banks is low. The hybrid banks are generally in good shape too. CIMB is a tier lower than SCBT/UOB/BAY in my perceptions, in the same way the remainder of the 9 Thai local CBs mentioned are second tier to the Top4
3) GSB is in reasonable shape and of course government backed. The financial shape of some (not all) of the government related banks like SME or Islamic bank is quite different though, with weak balance sheets, capital etc. With those two in particular you really are relying on government support
4) Citi Thailand is generally in good shape
ContextWhile the probability of default is low for the first 2 categories, and you should be OK with the first 2, sh*t happens, and low probability high impact or "tail-risk events" do occur. There are plenty of examples of how people have only spotted things after the event. Despite people with hindsight saying they saw it coming and the large number of experts after the event, very few people accurately predict the timing of these things.
So it pays to think "what if?"
Ways I think about the banks- I prefer to look first at the quality of the bank and then secondly at the support, including DPA and including direct government support, in that order. i.e identify banks least likely to default first then what happens if they do default later. As well as taking responsibility for my decisions I also think that's logical.
- So I stick mainly to the first 2 categories of banks. I would consider Citi, particularly if American, just they're less convenient. GSB should be OK too. It's just not that convenient though for expats. Islamic/SME banks I wouldn't touch. The government may well support them but there's all the admin hassle with it.
- The hybrid banks are likely to have the additional benefit of foreign parental support. While it may not be there expressly and contractually, there is also the moral obligation and reputational risk. eg for Stan Chart globally unless really extreme they'd probably step in as a) Thailand's only a couple of % of their total assets b) they would want to avoid the embarassment and reputational risk if they let Thailand go. The repercussions could be massive if they didn't and they'd lose business globally as other countries worry about a repeat of Thailand. Unless extreme cases the cost of bailing out Thailand would be small compared to the huge loss globally of letting a small country go. So while legally they could write it off and might not be obliged to provide specific support, they could just take it on the chin.
- Similarly for the foreign banks like Citi parental support would likely apply. There's the question though of what happens in reverse? i.e if the parent goes bankrupt. Citi globally suffered very badly in GFC, and most people will probably never know exactly how close western banking systems came to folding completely. Citi Thailand seemed fine. What I observed around GFC was that BOT very firmly stepped in and communicated that it wouldn't allow Citi Group being support at the expense of Citi Thailand, by repatriating funds from Thailand. So it effectively becomes Citi globally may support Thailand, but Thailand won't bear the brunt of Citi globally. People sometimes complain about strict regulation by BOT and not allowing this and that to be done in Thailand, but the upside is additional protection.
- Another factor is the banks with government interests one way or another. This can be either fully government owned, eg GSB or with part shareholdings like KTB.
- TMB has an interesting combination of foreign parent (25%) and MOF (26%), both of which could provide support.
Are all banks covered by DPA?No. Some of the government related banks are backed directly by the government
Is there enough money in the DPA fund to bail out the banks?When I've reviewed it and talked to others, there's a general acceptance it would likely cover a medium sized Thai bank. So maybe not a large Thai bank and definitely not the whole lot.
However, if there were a systemic threat my view is there is a strong probability the government would step in in some way. Like the US prints USD, Europe prints EUR, GBP prints GBP and all have done so to shore up their banking sectors, Thailand also has the option to print money to support. Unlike their regional peers, Thai banks have very low foreign currency liabilities. Unlike say Malaysia. Again BOT restrictions and rules which people complain restrict free flows actually help protect us here.
Ways to protect yourself from the "what if?" scenarios- I spread our money across different banks in different family members names. From August we may do that more
- Be careful of fixed deposits. August is only 4 months away. So anything over THB 1mn could be locked away and less accessible if the limit comes in for August. So either keep below 1mn per person per bank on fixed deposit or have a tenor under 4 months which matures before August so you can take a look what is happening. Again its unlikely something would happen if you make the right choices, but do you really want THB 10mn committed on a fixed deposit for 3 years just to get a bit more interest, if 4 months from now 90% of it may not be guaranteed.
- Think about mutual funds which are Thai government bond or Thai investment grade bonds or money market funds. They aren't covered by DPA. But instead for government bonds they are guaranteed by the government (who can always print money), and for IG bonds they are spread across many companies
- Have money outside Thailand. In most this makes makes sense anyway. DPA is just another reason. This would help protect against a systemic banking collapse in Thailand, in the unlikely event all banks in Thailand only failed.
- Remember the Thai DPA only protects THB deposits. Like many countries, Thailand only protects domestic currency under its DPA. Foreign Currency deposits are not protected. So why not put them somewhere in a country where they are? We hold money in SGD in Singapore. Again the amount is only guaranteed in SGD domestic currency, and up to SGD 50k per person per bank. That's around THB 1.25mn per person per bank. Generally the big 3 Singaporean banks have stronger credit ratings, and are well regulated with stronger financials. The Singapore government's sovereign rating is also higher than Thailand's so a stronger guarantor too.
- Invest in a bar in Thailand. (Nah just kidding)
Cheers
Fletch