Protecting the rights and interests of depositors in case that credit institutions get into troubles


People tend to choose to save their money at credit institutions for their convenience and safety. However, in case of bankruptcy of credit institutions, how can people’s deposits and legitimate rights and interests be protected? Related matters are specified in the Law on Deposit Insurance and other relevant laws.

According to the provisions of the amended Law on Credit Institutions in 2017, the State Bank of Vietnam (SBV) considers and submits to the Government for decision on the bankruptcy plan of credit institutions placed under special control as prescribed in the Article 147a; or the cases specified in Clause 4 - Article 148, Clause 4 - Article 148c, Clause 2 - Article 149a, Clause 4 - Article 149d, Clause 7 - Article 151a or Clause 7 - Article 151d of this Law when the credit institution placed under special control goes bankrupt.

According to this provision, credit institutions may still go bankrupt when they fall into insolvency and are unable to fulfill their financial obligations to their customers. However, in fact, no bank has gone bankrupt in Vietnam. Bankruptcy is considered the ultimate option when a specially controlled credit institution is unable to implement or has unsuccessfully implemented remedies such as recovery, merger, consolidation, dissolution or compulsory transfer.

Besides, according to Article 155 of the Law on Credit Institutions in 2010, after the SBV orders to terminate the special control; or issues a written notice to terminate the application of or not to apply solvency recovery measures but the credit institution still falls into bankruptcy, that credit institution shall make a request to the Court to launch procedures for bankruptcy.

In order to minimize risks and protect the legitimate rights and interests of depositors, the contents relating to insured depositors and insured deposits, rights and obligations of insured depositors, the insurance coverage limit, etc. have been clearly defined in the Law on Deposit Insurance– the highest legal basis governing deposit insurance activities in Vietnam. The Law on Deposit Insurance represents the State's commitment to ensuring the safety of deposits within the deposit insurance coverage limit when an insured institution becomes insolvent or goes bankrupt. The goal is to best protect the legitimate rights and interests of depositors.

Accordingly, Article 6 of the Law on Deposit Insurance stipulates that: Credit institutions and foreign bank branches, except the Vietnam Bank for Social Policies, that are allowed to receive deposits from individuals, are required to be members of the deposit insurance system. At the same time, Article 4 of the Law on Deposit Insurance also specifies a number of issues that depositors need to pay special attention to in order to better understand their rights and interests when saving their money at insured institutions, specifically:

Deposit insurance is a guarantee to return the deposits to insured depositors within the insurance coverage limit when an insured institution goes insolvent or bankrupt;

The coverage limit is the maximum amount of money that the deposit insurer pays for all insured deposits of a person at an insured institution when an insurance obligation arises;

The insured depositor is an individual having an insured deposit at an insured institution;

Insured institutions are credit institutions, foreign bank branches established and operating under the Law on Credit Institutions, which are entitled to receive deposits from individuals.

Over the years, the Deposit Insurance of Vietnam (DIV) has played an important role in protecting depositors, ensuring the safety and soundness of banking operations, and preventing financial crises, contributing to the socio-economic stability and development.

According to the DIV’s leaders, one of the important objectives of the deposit insurance policy is to "protect the legitimate rights and interests of depositors" in the condition of normal banking activities, as well as in the event of a failure or a threat to the systemic security.

Specifically, the DIV provides direct protection for depositors through the payout of deposit insurance when an insured institution goes bankrupt with a maximum coverage limit of 125 million dongs (including principal and interest) in accordance with current regulations. The excess of 125 million dongs will be settled as soon as the competent authority liquidates the assets of the insured institution in the correct order according to the provisions of law. As calculated by the DIV, with a limit of 125 million dongs, more than 90% of depositors are fully insured, in line with the recommendation of the International Association of Deposit Insurers (IADI) that the deposit insurance coverage limit should fully protect 90% - 95% of insured depositors.

DIV also indirectly protects depositors through synchronous and effective implementation of deposit insurance operations such as examination and supervision of insured institutions in complying with the provisions of the law on deposit insurance, making recommendations to the SBV to deal with violations of the safety of banking operations, risks causing unsafety to the system; providing information and conducting communication activities on deposit insurance policies, thereby helping to improve depositors’ awareness of their benefits so that they can recognize safe credit institutions to deposit their money in order to protect themselves, and avoid unfortunate risks of deposit loss. By June 2022, the DIV protects more than 6,900 trillion dongs of deposits of depositors at 1,283 insured institutions across the banking system in Vietnam.

In today's market economy, high interest rates often go with great risks. The revised Law on Credit Institutions in 2017 paves the way to allow credit institutions to go bankrupt, so that people will consider choosing a safe bank to deposit their money, which also means that the responsibility of the DIV to protect the rights and interests of depositors will be more burdened. In order to accomplish this goal, a representative of the DIV said that, in addition to the urgent completion of the legal basis for deposit insurance activities, it is essential to actively improve the financial capacity of the DIV so that it will be able to meet the requirements to realize assigned tasks.

However, the leader of the DIV also clarified that, although the overall view and goal in the direction of the Party and the State is to ensure the legitimate rights and interests of depositors in case of failure, the depositors themselves also need to be responsible for checking out and choosing a reputable bank to deposit their money instead of chasing high interest rates with a thought in mind that the deposit insurer will stand out to fully protect all their benefits in all cases of all risks.

As for credit institutions, they also need to be responsible for people’s deposits by strictly complying with the law and regulations on deposit insurance, ensuring safety in banking activities; avoiding competitive measures with high interest rates to attract customers, promoting fair competition to maintain good market discipline as well as systemic security.

Department of Research and International Cooperation (translation)