Foreign currency deposits surge in Thailand

The past year has seen a significant upturn in foreign currency deposits (FCDs), spurred by appealing interest rates due to global rate hikes. According to data from the Deposit Protection Agency (DPA), member financial institutions observed a surge in FCDs to a total value of 812 billion baht (US$22 billion) by November 2023, up from an earlier figure of 640 billion baht (US$17.89 billion).

This period also saw some large local banks reporting a remarkable 50% growth in FCDs per bank. The DPA’s president, Songpol Cheevapayaroj, attributed this growth to the attractive interest rates banks were offering, aligned with the global increase in rates. The interest rates offered by large local banks for FCDs fixed over 12 months ranged from 0.4% to 0.6% per annum, as per the Bank of Thailand’s database. Smaller to mid-sized banks, on the other hand, offered interest rates between 3-5%, depending on the bank’s conditions.

FCDs, besides being an investment alternative, serve multiple purposes. They are used by importers and exporters to manage foreign exchange risk and by individuals for specific needs. For example, parents planning to send their children abroad for education or individuals preparing for overseas trips often save via FCD accounts to mitigate foreign exchange risk.

Despite their value, FCDs fall outside the protection of the DPA. FCDs lack DPA protection, but they don’t pose a significant risk to the financial system due to their relatively small proportion. Total deposits under DPA protection amount to 16 trillion baht (US$447 billion), representing a deposit coverage ratio of 98%, while FCDs stand at 812 billion baht, Songpol Cheevapayaroj explained.

Deposit awareness

In 2024, the DPA aims to enhance awareness of protected deposit types, including general deposits, digital savings, e-wallets and deposits from emerging virtual banks. Suwannee Jatsadasak, assistant governor for the supervision group, stated that the central bank has also been monitoring the positive growth of FCDs, driven primarily by attractive interest rate offerings.

Despite the increased value of FCDs, she stated that this does not indicate any systematic risks, given that FCDs account for less than 1% of total deposits in the banking sector. Business operators, especially importers and exporters, and individuals with foreign-currency-based income and expenses, often use FCD accounts to streamline foreign exchange management.

She added that FCD accounts are also viewed by some depositors as an alternative investment avenue for better returns. However, they need to be aware of the higher foreign exchange risk. According to Ms Suwannee, FCD depositors are often affluent investors with a higher risk appetite, reported Bangkok Post.