Fulcrum for People's Credit Fund system


Deposit insurance (DI) is a tool for protecting depositors and the banking system. Therefore, insured institutions, depositors and the entire economy equally benefit from DI policy. In case of small sized credit institutions (CIs) such as People’s Credit Funds (PCFs), DI policy plays a role as the fulcrum for these institutions so that they can operate in a safe and effective way.

DI tool – effective mechanism to protect depositors

Judging the role of DI policy in maintaining the safety and soundness of the financial system, Dr. Can Van Luc – member of the National Fiscal and Monetary Policy Advisory Council stated that DI is one of the essential parts of the national financial safety net. DI also takes part in the supervision of CIs, thereby warning them of risks so that they can operate in a safer and more effective way.

Dr. Vo Tri Thanh – member of the National Fiscal and Monetary Policy Advisory Council said that the roles of the DI organization for CIs are reflected in 3 main aspects, namely “prevention” as the deposit insurer is a part of the supervisory net, ensuring the safety of the banking system; “cure” since if insured institutions get into trouble, the Deposit Insurance of Vietnam (DIV) will intervene and participate in the restructuring process to help them overcome difficulties and return to their normal operations; and “bringing confidence to the market”, especially to depositors via reimbursement when necessary. Therefore, in addition to reimbursement, “prevention” and “cure” have to be well implemented.

In the first days of its establishment and operation, the DIV immediately made payouts to depositors at a number of failed PCFs in Kien Giang and Hai Duong. Quick reimbursement instilled confidence into depositors, thereby enhancing their trust in the national banking system. Reimbursement, one of the core operations of the DI organization, is also the most direct and practical method to protect depositors.

The DIV is tasked with not only making payouts when CIs become insolvent or bankrupt but also other functions and duties such as granting and revoking certificates of DI participation, collecting DI premiums, examining, supervising and supporting insured institutions. The DIV has always been accompanying insured institutions since their establishment and monitoring their operations via examination and supervision. When a CI faces difficulties, the DIV will participate in special control as well as support its recovery, helping the troubled institution soon overcome difficulties to return to normal operations. In case the CI cannot recover according to the approved plan and is forced to go bankrupt, the DIV will make reimbursement to the depositors to protect their legitimate rights and interests, especially small depositors who have insufficient information about banking operations.

DIV –"midwife-cum-companion" of PCFs

Small and medium sized CIs, including PCFs, are important components of the banking system. For PCFs, first, DI policy helps them to develop in a safe and sustainable way. Moreover, DI policy strengthens depositors’ confidence in these small sized insured institutions and enables them to take advantage of their profound understanding of their localities and depositors to well compete with big banks and CIs. Finally, the DI organization is capable of assisting and resolving small and medium sized insured institutions as a specific mechanism is required to resolve large-scale and transnational CIs.

In Cao Phong town, Hoa Binh, Cao Phong PCF is one of well-operating CIs, which have greatly contributed to the local economic development. Mr. Nguyen The Anh – Deputy Secretary of the Party Committee, Chairman of the town's People's Committee affirmed that Cao Phong PCF have well implemented the task of circulating capital, channeling residents’ idle capital to enterprises and business households as well as individuals who are in need of capital for investment.

Speaking about the roles of DI policy and the DIV, Mr. Phan Van Tam – Chairman of the Board of Directors of Cao Phong PCF determined that DI policy played an important role for PCFs. The DI organization can be considered a “midwife” for both PCFs and banks. In practice, commercial banks are usually seen to be more trustworthy. However, Insured PCFs also receive public trust as when people deposit money in these PCFs, they are protected at the same level as in commercial banks.

PCFs are usually considered as rural CIs, mainly providing capital for agricultural activities. However, Quang Trung PCF in Ha Dong, Hanoi is a typical example of PCFs’ competitiveness against local banks in the context of urbanization. Despite operating in a sensitive and risky business, CIs will certainly benefit if they win customers’ trust.

Mr. Dinh Quang Trung – a depositor at Quang Trung PCF (in Ha Dong) shared that the reason behind his decision to deposit his money there is that the PCF has been operating effectively and safely over 20 years of development. The PCF’s staff members are always nice and enthusiastic toward customers while all procedures are conducted quickly. In fact, when depositing money, many people choose PCFs over banks although they offer higher interest rates as PCFs bring them confidence and trust.

Ms. Mai Thi Minh Huong – Director of Quang Trung PCF revealed that the PCF has faced general problems like other organizations in the industry as well as difficulties coming from the nature of PCFs. Besides, it has to compete with dozens of transaction offices and branches of local banks. However, depositors’ confidence is the PCF’s driving force. On the other hand, the DIV supports, protects and promotes CIs, including PCFs. The DIV’s public awareness program has also increased depositors’ understanding of their rights and interests, contributing to promoting public confidence when depositing money.

Enhancing DIV’s role in assisting PCFs and maintaining sustainable development of PCF system

In recent years, the DIV has been assigned a number of new tasks to support the sustainable development of the PCF system.

Dr. Vo Tri Thanh affirmed that the DIV has better implemented its tasks thanks to tools such as special lending, buying special bonds of assisting CIs, participating in the Special Control Boards and assessing recovery plans of CIs placed under special control. However, in the long run, the DIV needs more tools and options for ensuring the safety of the system.

In the coming time, it is necessary to review, amend and supplement the Law on DI to achieve consistency in the legal framework of DI and effectively use the DIV’s resources for assisting insured institutions and protecting depositors. With a coherent legal mechanism the DI organization will certainly bring a new and more effective approach and provide useful tools for the banking regulator and the Government.

It can be said that the DI organization plays a significant role in not only the banking system but also the entire economy. Accompanied by the DI organization, the banking system, the economy’s lifeblood, will grow in a safer and more sustainable way while depositors’ rights and interests are always be ensured.

Communication Department

Research and International Cooperation Department