DIV brings into play the role of supporting the operation of the People's Credit Funds


This is the result of the ministerial-level science and technology project entitled "The role of DIV in supporting the sustainable development of the People's Credit Fund system in Vietnam until 2025", which is led by Dr. Nguyen Dinh Luu, former Deputy General Director of DIV.

Contributing to maintaining stability and safety of the PCF system

The People’s Credit Fund (PCF) system is considered an important channel of capital to people in rural areas and poor people in urban areas, making an important contribution to hunger eradication, poverty reduction, and black credit control.

The safe and effective development of the PCF system is one of the important goals which are reflected in the Strategy for the Development of the Banking Sector to 2025, with orientation to 2030 (attached with Decision No. 986/QD-TTg dated August 8, 2018 by the Prime Minister) and in the "Project on consolidation and development of the People's Credit Fund System until 2020, with orientation to 2030" (issued together with Decision No.209/QD-NHNN dated January 31, 2019 by the Governor of the State Bank of Vietnam).

Accordingly, developing the PCF system in accordance with the objectives and principles of the cooperative credit institution under the legal regulations; having an organizational structure, sufficient financial, administrative and control capacity, ensuring the safe, efficient, stable and sustainable operations, meeting the capital needs of the members of the PCF towards the main goal of mutual assistance among members to serve production, business, and improve living standards, especially in rural, remote and poor areas;

Improve access to finance, contribute to the implementation of the State's policy on agricultural and rural development, limit the black credit, ensure social security and eliminate poverty reduction sustainably, contributing to promoting the development of the collective economic sector, in which the core is the cooperatives;

To develop the Cooperative bank with sufficient financial capacity, strengthen governance, administration, control, and operate safely, effectively and sustainably in order to well perform their role as the bank of all PCFs;

Implement systemic connection, financial support, capital regulation, ensure the safety of the system of PCFs, promote the development of other types of collective economy as cooperatives on a national scale.

Ms. Nguyen Thi Hien, Deputy Director of the Banking Strategy Institute said that deposit insurance is considered an effective tool of the State Bank of Vietnam to ensure the stability and safe and healthy operation of credit institutions as well as the legitimate interests of depositors. Accordingly, the project will point out the role of deposit insurance in the development of PCFs in some aspects such as the process of ensuring operational safety; the process of restructuring and handling weak credit funds; professional activities such as supervision, examination, financial support, deposit insurance payout... Hence, solutions are proposed to improve the role of deposit insurance with the PCFs.

“The greatest success of the project is to give practical suggestions for the process of amending and supplementing the SBV’s legal framework, which has the effect of supporting the revision of the Law on Deposit Insurance, the Law on Credit Institutions… ", affirmed Ms. Hien.

On behalf of the research team, Dr. Nguyen Dinh Luu informed that deposit insurance has contributed to maintaining stability and strengthening the safety of the PCF system, affirming the important role of DIV as the State financial institution that operates on non-profit purpose; carries out its mission of protecting depositors through effective deposit insurance policy and operations. Thereby, contributing together with important national financial safety net agencies to better control, detect and warn of risks to maintain and ensure safe and healthy operation of the entire PCF system.

Capital management and investment activities are carried out in accordance with regulations safely and effectively, contributing to the development of capital sources, providing additional revenue for the professional reserve fund and improving the financial capacity of the DIV.

In addition, DIV also actively do research and proposes to competent authorities the contents of the amending and supplementing of legal documents on the mechanisms and policy for the organization and operation of the PCF system, enabling the PCF system to operate more safely and effectively. Besides, DIV also participates in the process of restructuring the PCF system.

However, there are still certain limitations in the role of DIV to participate in the special control of troubled PCF; the role in restructuring and handling weak PCFs; the role in supporting to enhance systematic connection.

The reason is that the legal framework on the functions, roles and responsibilities of DIV is still incomplete, unclear, inconsistent and does not met practical requirements. Currently, there is a lack of mechanisms and policy to effectively handle the restructuring process of specially controlled credit institutions and regulations to create conditions for DIV to promote its role in supporting PCFs and connect the PCF system...

Completing the legal framework to enhance the role of DIV

According to the research team, completing the legal framework is the leading solution to enhance the role of DIV in supporting the operation of PCFs.

Specifically, it is necessary to supplement regulations that specify the insured and uninsured deposits; reconsider the regulation of deposit insurance premium whether differentiated or flat rate; supplementing regulations on the deposit insurance exemption and extended time for fee payment, amend and supplement regulations on responsibility for proactively calculating and paying fees; penalty for lack or late payment…

In addition, the research team also believes that it is necessary to clarify and strengthen the role of DIV in issuing deposit insurance participation certificates and displaying deposit insurance participation certificates. It is proposed to amend and supplement the more appropriate time when the payment obligation arises. Stipulate the adjustment of deposit insurance coverage limit in accordance with macroeconomic conditions on the Law on deposit insurance…

Regarding special lending to specially controlled PCFs, it is necessary to supplement the provisions in the Law on Deposit Insurance that DIV being entitled to provide loan to specially controlled credit institutions, including PCFs in accordance with the Law on Credit Institutions (2017).

Regarding the financial support mechanism when implementing the early intervention decision, it is essential to supplement the regulation that DIV be allowed to apply the financial support mechanism for cases that are put under early intervention but not in special control (Current law does not stipulate this mechanism).

Regarding deeper participation in the process of restructuring PCFs, it is necessary to supplement regulations in the direction that DIV can participate more deeply and effectively in the process of restructuring and handling weak PCFs.

The research team also proposes to supplement the financial support mechanism for PCFs that are under early intervention or in cases where the PCFs with systemic influence cannot be dissolved or go bankrupt but have not been placed under special control.

On the side of the Government and the National Assembly, the research team proposes that it is necessary to include the projects amending and supplementing a number of articles of the Law on Deposit Insurance and  the Law of the State Bank of Vietnam in the program of developing legal documents; plan and draft the Law designed for the PCF system. It is suggested that the Government submit to the National Assembly to apply tax incentives for PCFs at 50% compared to other credit institutions, that is, at 5-7,5%. Consider a mechanism to enable DIV to use its financial resources to support training for PCF staff.

On SBV’s side, it is necessary to organize an early review of the implementation of the Law on Deposit Insurance as a basis for submission to the Government for consideration and submission to the National Assembly for amendments and supplements to the Law on Deposit Insurance. While the Law on Deposit Insurance has not been amended and supplemented, the SBV should issue circulars guiding the DIV to perform a number of functions and tasks specified in the Law on Deposit Insurance and the Law on Credit Institutions (2017). Promulgate regulations on coordination, exchange of work, reports on the results of supervision and examination of PCFs between the SBV and DIV. Guide the technical, financial and training support mechanisms of DIV toward PCFs, the Cooperative Bank and People's Credit Unions Association.

On the side of the Ministry of Finance, it is necessary to amend and supplement Circular No.312/2016/TT-BTC and Circular No.20/2020/TT-BTC; amending and supplementing the financial mechanism for DIV to be more suitable with the amending and supplementing of the Law on Deposit Insurance so that DIV can well perform its role on participating in the restructuring of credit institutions in general and PCFs in particular.

Sharing his point of view, one representative of a PCF expressed his wish that the legal corridor would soon be completed and come to effect, especially the specific regulations for the PCFs. Some regulations on license tax of PCFs also need to be more clearly defined. At the same time, it is expected that PCF would be supported more on the training of expertise.

Communication Department