Protecting legitimate rights and interests of depositors by deposit insurance policy

15:40-28/07/2022

According to the Decision No. 32/2021/QD-TTg dated October 20, 2021 of the Prime Minister, on December 12, 2021, the coverage limit on deposit insurance was increased to 125 million dongs per individual per insured institution (the previous limit was 75 million dongs). The periodic increase of the coverage limit helps better protect the legitimate rights and interests of depositors.

The coverage limit is always adjusted flexibly

Article 24 of the Law on Deposit Insurance states that: The coverage limit is the maximum amount of money that the deposit insurer pays for all insured deposits of an individual at an insured institution when the payment duty arises; The Prime Minister makes decision on the coverage limit upon the proposal of the State Bank of Vietnam (SBV) in each period.

This regulation ensures that the coverage limit is always adjusted flexibly when necessary to be in line with the socio-economic conditions and people’s income in each period, thereby showing the deposit insurance policies’ improvement and better protection of the legitimate rights and interests of depositors at insured institutions.

The Deposit Insurance of Vietnam (DIV) was established in 1999, and over the past 20 years, the DIV has periodically reviewed the appropriateness of the coverage limit with the changes in the macroeconomics, finance and monetary market, banking operations, gross domestic income, average per capita income, etc. and reported to the SBV for proposing to the Government to adjust the coverage limit when applicable. Specifically, in 1999, the coverage limit (for principal and interest) per individual per insured institution was 30 million dongs. In 2005 and 2007, the limit was raised to 50 million and 75 million dongs, respectively. Up to now, according to the Decision No. 32/2021/QD-TTg, the coverage limit was increased to 125 million dongs.

According to the International Association of Deposit Insurers (IADI), the coverage limit should be limited, credible, and cover the large majority of depositors but leave a substantial amount of deposits uninsured to contribute to maintaining the market discipline and avoiding moral hazard.

In Vietnam, the coverage limit is developed based on three factors, including:

First, the coverage limit should be limited and cover the majority of depositors, especially small depositors, but ensure a substantial amount of deposits exposed to the market discipline.

Second, it should be in accordance with the macroeconomic conditions in Vietnam.

Third, it must be credible and suitable to the financial capacity of the deposit insurer.

Given Vietnam’s positive growth outlook and the significant improvement of the DIV’s financial capacity, the periodic review of raising the coverage limit in the coming years is totally possible and essential to better protect the rights and interests of depositors in accordance with international best practices; contributes to maintaining and enhancing public confidence in the credit institutions system and helps credit institutions attract the maximum amount of idle capital of people to facilitate the socio-economic development and ensure its safe and sound operations.

Depositors are protected not only by the coverage limit

The Government and the SBV are striving to implement the restructuring process of credit institutions attached to non-performing loans settlement. Its overall view and objectives are to ensure legitimate rights and interests of depositors, strengthen public confidence in the credit institutions system, and ensure no out-of-control failures.

The recent coverage limit increase further protects depositors on the one hand but puts pressure on the DIV on the other hand in the context of not raising deposit insurance premium rates. It requires the DIV to manage and invest its funds safely and effectively while maintaining high liquidity to best protect legitimate rights and interests of depositors.

By now, the DIV protects depositors at 1,283 insured institutions (including 97 banks and foreign bank branches, 1,181 people’s credit funds, 1 cooperative bank, and 4 microfinance institutions).

The DIV protects depositors through not only reimbursement but also other core operations. Accordingly, the DIV always facilitates the granting of certificates of deposit insurance participation in an adequate and timely manner since the establishment of credit institutions; well cooperates with insured institutions, socio-political organizations, universities and colleges in organizing public awareness events for students and people in remote and isolated areas; collaborates with propaganda organizations in strengthening the dissemination of deposit insurance policies, timely reaching a wide range of people, and especially maintaining and improving public confidence in the financial and banking system.

Annually, the DIV conducts offsite monitoring of 100% of insured institutions and onsite examination as planned together with examination of a number of insured institutions under the SBV Governor’s direction. Through its offsite supervision and onsite inspection, the DIV has timely detected errors, problems, risks, and weaknesses to make early warnings to insured institutions and report to the SBV for timely intervention to help insured institutions maintain safe and sound operations.

When insured institutions encounter problems and are put into special control, the DIV sends its personnel to participate in the Special control Board in accordance with the SBV’s decision. The DIV also provides special loans to support the liquidity of insured institutions in special control which are in danger of insolvency and affect the safety and soundness of the whole system; at the same time, it purchases long-term bonds of supporting credit institutions and takes control, administers and provides financial assistance for operations of credit institutions placed under special control.

In addition to those core operations, the DIV participates in developing and reviewing recovery plans of problem people’s credit funds and microfinance institutions on the basis of cooperating with local authorities, the Special Control Board, the Cooperative Bank, and the SBV in disseminating deposit insurance policies and regulations, supporting problem institutions’ liquidity and helping them return to their normal operations.

In the past years, deposit insurance core operations have positively contributed to helping insured institutions prevent risks, minimize the possibility of falling into failure, and enhance public confidence, especially in the credit institutions system.

Research and International Cooperation Department (translation)