Deposit insurance contributes to improving the safety of the financial system


Improving the safety level for the financial system requires the participation of many State management agencies, supervisory agencies including the Deposit Insurance of Vietnam (DIV). Over the past 23 years, DIV has played a good role in protecting the legitimate rights and interests of depositors, making an important contribution to ensuring the healthy, stable and expanding banking and financial system.

The deposit insurance organization was established with the aim of protecting depositors, contributing to maintaining the stability of the system of credit institutions, ensuring the safety and soundness of the banking activities, the sustainable development of the financial system and the economy.

Over the past 23 years of operation, DIV has gradually made efforts to prove its important role in depositor protection, contributing to social security, and better performing its functions and duties under the Law on Deposit Insurance and other relevant laws. Promoting the role and function in ensuring the safe and healthy development of banking activities, the DIV has always adhered to the regulations of the State and the Strategy for the development of the banking industry in Vietnam to 2025, with orientation to 2030 approved by the Prime Minister.

The role of DIV is enhanced by participating in the restructuring process of weak credit institutions. The Law amending and supplementing a number of articles of the Law on Credit Institutions in 2017 and guiding documents mentioned the participation of the DIV in the process of restructuring weak credit institutions through such operations as: Participating in long-term bond purchase to provide financial support to credit institutions subject to restructuring; Participating in lending to support liquidity for insolvent credit institutions; Allowing financial companies to borrow special loans from the operational reserve fund to support the implementation of approved recovery plans; Coordinating with the Special Control Board and the specially controlled credit institution in formulating a plan for bankruptcy of the credit institution.

From 2011 up to now, the DIV has always actively cooperated with the State Bank of Vietnam (SBV) in implementing the Scheme on restructuring the system of credit institutions. In order to promptly prevent the collapse of weak credit institutions and ensure the safety of the financial-banking system, the deposit insurer continues to promote offsite supervision, on-site examination, and timely resolution of weak people's credit funds. To detect and give early warning of potential risks to the deposit insurance participating organizations, the deposit insurer conducts assessment and classification for people's credit funds, strengthens supervision of PCFs rated level 4 - 5 and included in special control.

The DIV has coordinated with the provincial SBV branches and authorities, focused all resources on handling weak PCFs, coordinated to pay depositors at specially controlled PCFs, and helped stabilize the situation, depositors’ mentality, ensuring bank security. Timely, accurate and convenient insurance payment activities have created confidence for depositors, contributing to stabilizing the local socio-economic situation.

Deposit insurance policy is well implemented, the number of depositors insured is increasing. By the end of the second quarter of 2022, the DIV is protecting the deposits of more than 74 million depositors at 1283 participating institutions, including 97 banks and foreign bank branches, 1181 PCFs, 1 cooperative bank and 4 microfinance institutions.

The DIV has well performed the management of deposit insurance premium collection. The result of premium collection and investment of temporarily idle capital contributed to the improvement of the financial capacity of the DIV, with total assets of more than VND 88 trillion and the reserve fund of over VND 80 trillion. With the current financial capacity and operating mechanism, the DIV is capable of fulfilling its mission of depositor protection, in accordance with international practices and standards, and effectively participating in the process of restructuring the system of credit institutions through financial support activities.

However, the rapid development of Vietnam's financial market requires the deposit insurer to make more efforts in increasing the operational scale, improving the financial capacity, as well as renewing the operating mechanism and strengthening the offsite supervisory capacity and on-site examination of weak credit institutions.

Stemming from the actual situation of Vietnam, in order for Vietnam's banking and financial system to develop sustainably, especially in the process of restructuring credit institutions, it is necessary to study and implement a the following number of solutions:

Firstly, strengthen coordination among agencies in the financial safety net (National Financial Supervisory Commission, SBV, Ministry of Finance, etc.) in implementing supervision of the national financial system, especially the coordination in risk-based supervision, thereby analyzing, forecasting and warning the level of system safety and risks to the national financial market. In addition, the deposit insurer should actively participate in the development and implementation of the mechanism for coordination and information sharing among agencies in the financial safety net, contributing to facilitating sufficient information, especially cooperate with the Banking Inspection and Supervision Agency (BSA) in monitoring and supervising organizations participating in the deposit insurance.

Secondly, the DIV continues to participate in the process of restructuring credit institutions, focusing on dealing with weak credit institutions in order to ensure safety for the system of credit institutions, contributing to the soundness of the national financial system.

Thirdly, improve financial capacity and ensure resources for the deposit insurer in the process of restructuring credit institutions by supplementing and strengthening the professional reserve fund for deposit insurance from sources such as deposit insurance premiums and temporarily idle capital investment income. In the context that commercial banks tend to increase their charter capital, the capital source of the deposit insurer also needs to be commensurate with the market size.

Fourthly, strengthen and improve the supervision, risk warning and handling of weak credit institutions. The risk monitoring of institutions participating in deposit insurance aims to protect depositors and contribute to stabilizing the situation of the financial and banking system. Hence, there must be complete and clear legal regulations about subjects of risk monitoring; how to use the results of risk monitoring and testing; provision of reports and exchange of monitoring information between relevant entities; sanctions for institutions participating in deposit insurance that do not strictly comply with regulations on inspection and supervision of deposit insurance participating organizations.

Finally, promote communication to build and strengthen depositors' trust and ensure the stability and safety of the financial-banking system. Continue to promote activities to the targeted audience, especially towards rural, remote and isolated area. to increase public awareness of deposit insurance policy.

Communication Department