The Cabinet on Tuesday approved a postponement of such a dramatic degree of guarantee reduction, which had been scheduled to take effect this coming August 11, in order to provide more time to step up deposit protection and build confidence among depositors.

The Cabinet agreed that the deposit guarantee would instead fall to Bt15 million per depositor per bank between August 11, 2016 and August 11, 2018.

It will then be reduced further, to Bt10 million, until August 11, 2019, and lowered again to Bt5 million from August 12, 2019 to August 11, 2020.

The ultimate deposit-protection amount of Bt1 million will become effective on August 12, 2020.

Tanyapong Thamavaranukupt, senior executive vice president and head of retail banking at Krungthai Bank, said the four-year delay in lowering the guarantee amount to Bt1 million was a good thing for KTB and its customers, as it allowed more time to prepare for reducing the impact.

The bank has been preparing itself for a cut since the Deposit Protection Act gave legal authority for the guarantee amount to be reduced, he said.

“The government considers that [a change in] deposit protection should not impact on the economy amid the current slowdown and a drop in lending,” he added.

KTB will now focus more on funding-cost management in order to reduce the effect on its interest margin after cutting the minimum retail rate by 0.255 percentage points.

“We have to take care of those customers to whom the bank used to give a special deposit rate because, now we have cut lending rates, the extra deposit rates for those depositors might have to be adjusted,” the executive explained.

The reduction in its lending rate will affect KTB’s profit in the current quarter, he said.

Chartsiri Sophonpanich, president of Bangkok Bank, said the phased reduction would increase confidence among customers, although the bank itself would not be directly affected and had sufficient liquidity.

However, the impact on the bank of the recent reduction in its lending rate means it will seek additional income from fees and lending to offset some of the revenue from the rate cut. Arthid Nanthawithaya, chief executive officer and deputy chairman of Siam Commercial Bank’s executive committee, said the bank acknowledged that the government might be giving time to the banks to raise their deposits, enabling them to support lending to fuel the sluggish economy.

The recent cut in lending rates will affect SCB’s profit, but the bank will offset the expected decline with other income, including fees, he said.

Kattiya Indaravijaya, president of Kasikornbank, said that while the recent lending-rate cut would affect its profit in the second quarter, the bank would carefully manage its funding cost and expenses – alongside seeking more fee income – in a bid to maintain earnings growth.