A new Act, the Deposit Protection Agency Act (DPA Act), has come into force in Thailand. The DPA Act establishes the regime for the protection of deposits with commercial banks, finance companies, credit foncier companies and other banks established under specific laws (Financial Institutions).
What does the DPA Act do?
- Establishes the Deposit Protection Agency (DPA), the institution responsible for the protection of deposits.
- Gradually decreases the limit on deposit protection to, eventually, one million Baht per depositor, per Financial Institution.
- Establishes the compensation regime for affected depositors.
- Requires the DPA to act as liquidator of any Financial Institutions which have had their licences revoked.
The DPA Act became effective on 11 August 2008.
Summary of Key Features
Establishment of DPA
The DPA was established as a juristic entity on 11 August 2008. It is separate from the Bank of Thailand, the regulator of financial institutions in Thailand. The Thai Cabinet has also, on recommendation from the Minister of Finance, appointed a director who is responsible for the implementation of policies, regulations or rules set by the board of the DPA.
Main Responsibilities of the DPA
The main responsibilities of the DPA are:
- to establish the deposit protection fund (Fund);
- to collect contributions from Financial Institutions to the Fund (Contributions);
- to act as liquidator of Financial Institutions which have had their licences revoked;
- to monitor the status or operations of Financial Institutions;
- to report to the Bank of Thailand or other relevant authority where the status or operations of any Financial
- Institution may “cause damage to the public interest”; and
- to establish the compensation regime for deposits with Financial Institutions which have had their licences revoked.
Types of Deposits which are protected
All types of Thai Baht deposits (principal and interest) in onshore accounts with any Financial Institution, other than non-resident Baht accounts, are protected under the DPA Act (Deposits).
Limits on deposit protection
Deposits will remain fully protected within the first year after the establishment of the DPA. In the second year after the establishment of the DPA, Deposits of a depositor with any single Financial Institution will be protected up to Baht 100 million. In the third year and fourth year, the limits will be reduced to Baht 50 million and Baht 10 million, respectively. From the fifth year the limit will be reduced to Baht 1 million.
However, in response to the global financial crisis the Thai Cabinet, on 28 October 2008, approved an extension of the period of full protection up to the end of the third year after the establishment of the DPA, and resolved to introduce a limit of Baht 50 million in the fourth year, which will be reduced to Baht 1 million from the fifth year onwards. These changes will come into effect on receipt of Royal Assent.
Deposit Protection Fund
The Fund will comprise mainly the Contributions which will be calculated based on a prescribed percentage of the balance of Deposits protected under the DPA Act. On 19 November 2008, the Thai Cabinet approved the rate of Contribution of 0.4%. The rate will come into effect on receipt of Royal Assent. A surcharge will apply if a Financial Institution does not pay its Contributions on time. Outstanding Contributions will rank second only to outstanding tax liabilities in the winding up of the relevant Financial Institution.
Where a Financial Institution has had its licence revoked, the DPA will make an announcement, within 40 days from the date of such revocation, calling for depositors to submit their claims. All claims must be submitted within 90 days from the date of the DPA’s announcement. The Minister of Finance may grant up to two extensions, of no more than 90 days each, for depositors to submit their claims. The right to receive compensation under the compensation regime will lapse if a claim is not submitted within the relevant claim period. Compensation will be paid within 30 days from the date of the submission of the claim and the amount payable will be netted off against all outstanding debts owed by the depositor to the relevant Financial Institution.
Effect of DPA Act on the FIDF
Prior to the establishment of the Fund, Financial Institutions are required to pay contributions to the Financial Institutions Development Fund (FIDF). Enactment of the DPA Act did not result in the liquidation or dissolution of the FIDF. However, Contributions made by a Financial Institution will, in effect, exempt that Financial Institution from its obligations to make contributions to the FIDF.