Some recommendations to amend and supplement the Law on Deposit Insurance for better protection of legitimate rights and benefits of depositors

16:29-25/01/2022

The Law on Deposit Insurance which was passed by the National Assembly (Session XIII) on 18 June 2012 and enforced since 1 January 2013, made an important milestone of the deposit insurance operation in Vietnam. The law practical implementation has proved that the Law on Deposit Insurance is an effective legal tool to protect legitimate rights and benefits of depositors, contribute to maintaining the stability of the credit institutions system and ensuring the safe and sound development of banking activities. However, recently the implementation of the Law on Deposit Insurance, especially the provisions directly relating to depositors, has encountered some difficulties and shortcomings that need to be solved.

In fact, the Law on Deposit Insurance legalized the State and Party’s approach and policy, building the legal corridor at the highest level for the deposit insurance scheme in Vietnam. The enactment of the Law on Deposit Insurance has contributed to the stability and development of the financial and banking sector in Vietnam. 

The Law on Deposit Insurance has specific provisions such as: clearly defining that the purpose of deposit insurance is to protect legitimate rights and interests of depositors; The insured depositor is an individual having an insured deposit at an insured institution; The State has policies to protect legitimate rights and interests of depositors; Rights and obligations of depositors (such as having their deposits insured, receivingfull insurance pay-out on time, requesting that the insured institution and the deposit insurer provide full and accurate information on deposit insurance...); Determining the time of arising a pay-out obligation; Pay-out amount; Handling the amount exceeding the coverage limit…

The fact is that the Law on Deposit Insurance has made positive changes to the deposit insurance policy in Vietnam, building a firm legal basis for deposit insurance activities. However, the actual implementation of the Law on Deposit Insurance has shown up some shortcomings that lessen the effectiveness of depositor protection. Therefore, it is necessary to actively study and propose amendments and supplements to the Law on Deposit Insurance to better protect the legitimate rights and interests of depositors.

Provisions on insured deposits and uninsured deposits

The Law on Deposit Insurance provides that insured deposits are the deposits in Vietnamese dong of individuals at insured institutions in the forms of term deposits, demand deposits, savings deposits, certificates of deposit, promissory notes, bills and other forms of deposits as prescribed by the Law on Credit Institutions, except for the following types of deposits: (i) Deposits at credit institutions of individuals who own more than 5 % of total charter capital of those credit institution; (ii) Deposits at credit institutions of individuals who are members of the Members' Council, members of the Board of Directors, members of the Supervisory Board, General Directors (Directors), Deputy General Directors (Deputy Directors) of the credit institutions; deposits at foreign bank branches by individuals who are the General Directors (Directors), Deputy General Directors (Deputy Directors) of that foreign bank branches; (iii) Investment in unnamed bills or notes issued by insured institutions.

The Decree No. 68/2013/ND-CP dated 28 June 2013 by the Government specifying and guiding the implementation of the Law on Deposit Insurancestipulates that microfinance institutions must be a member of the deposit insurance scheme for the deposits of individuals includingvoluntary deposits of microfinance customers, except for compulsory savings deposits as prescribed by microfinance institutions.

Currently, there are different views on the determination of insured deposits. Difficulties in determining whether certain types of deposits are insured or uninsured have arisen with such types as margin deposits, deposits to secure payment obligations, money in e-wallet accounts, money to buy bonds issued by insured institutions...

Therefore, in order to facilitate the determination of insured deposits foraccurate and full reimbursement to depositors, it is necessary to propose to supplement the Law on Deposit Insurance with provisions to clarify uninsured deposits.Specifically, the compulsory deposit as regulated by microfinance institutions is uninsured. Besides, it is necessary to stipulate that the State Bank of Vietnam (SBV) provides guidance for clarifying types of deposits not yet regulated in the Law on Deposit Insurance.

The date when insurance payment duty arises

The Law on Deposit Insurance stipulates that insurance payment duty arises from the occurrence of one of the following events: The SBV issues a written termination of special control status or written notice to terminate or reject the application of measures to restore solvency and the insured institution still falls into bankruptcy; or the SBV in writing determines thata foreign bank's branch is incapable of paying deposits to depositors.

However, the existing provisions in the Law on Deposit Insurance on insurance payment duty arising from the datewhen the SBV issues a document to terminate special control is inconsistent with Article 98 of the Bankruptcy Law and the Article 145b of the Law on Credit Institutions, leading to difficulties in determining the time of starting the pay-out obligation. According to the Law on Credit Institutions, the SBV shall issue a decision to terminate the special control after the Court launches the bankruptcy procedure for the credit institution under special control; while the Bankruptcy Law stipulates that the Court only accepts the petition to open bankruptcy proceedings when there is a written notice of termination of special control by the SBV. This inconsistency makes it difficult to determine when the insurance payment obligation arises.

In addition, according to Law No. 17/2017/QH14 amending and supplementing a number of articles of the Law on Credit Institutions, credit institutions under special control that are able to recover may be qualified to take restructuring measures before considering bankruptcy. This stage takes time and may cause depositors to go panic and distrust the deposit insurance policy.

To deal with those shortcomings, also for better protection of legitimate rights and interests of depositors, it is necessary to amend the time that payment obligations arise in the direction that the determination should be earlier.

Deposit insurance coverage limit

The Law on Deposit Insurance stipulates that the coverage limit is the maximum amount that a deposit insurer pays for all insured deposits of an individual at an insured institution when insurance payment duty arises; The Prime Minister shall prescribe insurance coverage limits at the request of the SBV for each period of time.

The coverage limit has been gradually adjusted to increase from time to time, from VND 30 million (in 1999), to VND 50 million (in 2005) and VND 75 million (in 2017). Most recently, the Prime Minister issued Decision No. 32/QD-TTg dated 20October 2021 on deposit insurance coverage limit, specifically the coverage limit was raised to VND 125 million. The adjustment was aimed to better protect the interests of depositors according to international practices and standards, thereby contributing to strengthening people's confidence in the system of credit institutions.

Nevertheless, the practice of handling weak credit institutions, especially people's credit funds under special control, proves that depositors need better protection; especially in case the financial market is in danger of crisis, it is necessary to have a mechanism ofspecial coverage limit for special cases.

Many countries around the world have applied the blanket guarantee(full pay-out without limit) in times of financial crisis. However, the blanket guarantee is oftenapplied with political commitmentsmade by the Governments (in Indonesia, the Philippines...).

Therefore, it is essential to study to propose a supplement to the Law on Deposit Insurance providing for pay-out in special cases.

It is admitted that protecting legitimate rights and interests of depositors is the most important goal of the deposit insurance scheme. Most importantly, the protection of depositors needs a legal basis for enforcement. Therefore, in order to fully and effectivelyamend and supplement the Law on Deposit Insurance, it is necessary to continue to actively study and make detailed proposals aimedto best protect legitimate rights and interests of depositors.  

Research and International Cooperation Department