Bank Deposit Risks for Thai People

Even low-risk instruments have drawbacks.

Two valuable lessons about investments emerged from the economic crisis of 1997.

What were once considered safe investments are no longer so.

Expectations of higher investment yields must be matched by higher risk tolerance.

Those who can't tolerate losses, even sometimes, should choose lower risk investment products.

In late 2001 , the lowest risk instruments in Thailand are bank deposits, finance companies' promissory notes and other similar forms of borrowings such as Negotiable Certificate of Deposits (NCD).

This is because the Bank of Thailand's Financial Institutions Development Fund (FIDF) now guarantees the principal and interests for depositors and holders of these instruments.

Even if the bank or finance company fails, due to excessive NPLs or any other causes, the government promises you get your money back within 30 days. This basically means the default risk for the investor is virtually removed by the government.

But these instruments do carry other risks such as income risk, reinvestment risk and liquidity risk.

Your investment has considerable investment risk if you earn less as a result of declining interest rates. Consider this: if you deposited the money in a three-month time deposit or a three-month promissory note in 1997 and kept 'rolling it over' like most people in Thailand, you would be receiving much less today than you did in 1997.


Reprinted with modification from 'Money Matters', a weekly column written by Reungvit Nandhabiwat , managing director of Ayudhya Jardine Fleming Asset Management, for the Bangkok Post.