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Deposit insurance – Effective mechanism for protecting depositors
Evaluating the role of DI policy in maintaining the stability and safety of the financial system, Dr. Can Van Luc – member of the National Monetary Policy Consultancy Council said that DI is one of fundamental elements of the National Financial Safety Net. Besides, the deposit insurance organization participates in supervising credit institutions, thereby provides risk warnings for these institutions to operate more safely and effectively.
Dr Vo Tri Thanh – member of the National Monetary Policy Consultancy Council stated that the role of the deposit insurance organization is shown in 3 aspects. The first one is “to prevent illnesses” since the deposit insurance organization belongs to the supervision network, ensuring the safety of the banking system. The second one is “to treat illnesses” when insured institutions are “in difficulty”, then the DIV will participate in restructuring, supporting them to recover from their illnesses and come back to normality. The third one is to create confidence of the market, especially depositors through reimbursement when necessary. Therefore, besides reimbursement, it is necessary to “prevent illnesses” and “treat illnesses” in a good way.
Right after its establishment, the DIV immediately reimbursed the depositors of some failed PCFs in Kien Giang and Hai Duong. The fact that the depositors quickly received deposit insurance payments was “a spiritual dose”, thereby strengthening confidence in the system of domestic banks. Deposit insurance reimbursement is a measure to protect depositors directly, practically, and a core function of the deposit insurance organization.
Not only making pay-outs when credit institutions are insolvent or bankrupt, the DIV is also assigned with a lot of functions and tasks like: granting and revoking the certificates of DI participation, insurance premium collection, examination, supervision as well as supporting insured institutions. The DIV always accompanies an insured institution right from its establishment, closely monitors its operations through examination and supervision. When the CI is in difficulty, the DIV participates in the process of special control as well as supports its recovery, helping the problem institution to early recover to normal operations. When the CI cannot recover according to approved options, requiring the implementation of bankruptcy options, the DIV shall reimburse the depositors to protect their legitimate rights and benefits, especially small depositors who have limited access to information about banking operations.
The DIV –acting as both a “midwife” and a “companion” of CIs
Small and medium-sized CIs, including PCFs are important components of the banking system. As for PCFs, firstly, deposit insurance policy supports these institutions to develop stably and safely. Besides, deposit insurance policy creates the confidence of depositors in small-sized insured institutions, helping these institutions to take advantage of perception about location, closeness to depositors so that they can compete fairly, soundly with large ones. Finally, the capacity of the deposit insurer is suitable for supporting and dealing with small and medium-sized insured institutions, since it requires special mechanisms to deal with large-sized CIs, cross-border CIs.
In Cao Phong town – Hoa Binh, Cao Phong PCF is one of CIs which operate in a professional, effective way, making active contribution to developing the local economy. Mr Nguyen The Anh – Deputy Secretary of the Party Committee, Chairman of the town People’s Committee confirmed that Cao Phong PCF had well circulated capital, injected idle capital into enterprises, business households and individuals in need of capital for investment.
Sharing the role of deposit insurance policy and the DIV, Mr Phan Van Tam – Chairman of the Board of Directors of Cao Phong PCF stated deposit insurance policy is very important to PCFs. The deposit insurance organization can be regarded as a “midwife” of PCFs as well as banks. Normally, PCFs are still considered to be rural credit institutions, mainly providing capital for agricultural activities. However, Quang Trung PCF, Ha Dong, Hanoi is proof that in the urban context, PCFs still can compete fairly with banks in the same location. In a sensitive, risky business sector, once gaining the confidence of clients, CIs surely attain good results.
According to Mr Dinh Quang Trung – a depositor in Quang Trung PCF (Ha Dong), he deposited his money with this PCF because it operated very effectively, safely after 20-year development. When doing transactions at this Fund, clients are always treated by the staff in a warm, enthusiastic way and enjoy promptness in doing procedures. In fact, even when deposit rates at some commercial banks were higher than those at this Fund, a lot of depositors still chose to deposit money with this Fund because of its credit.
Ms Mai Thi Minh Huong – Director of Quang Trung PCF said that during its operation, the Fund had also faced common difficulties of the economy and particular difficulties of this type of cooperative CIs. Besides, this Fund has to compete with tens of transaction units, branches of banks in the same location. However, the trust of depositors is the motivation for development of the PCF. Moreover, the DIV has supported, protected and motivated CIs, including PCFs. Public awareness promotion activities conducted by the DIV has helped a lot of depositors at the Fund to perceive that their rights are legitimately protected, so that they feel more confident in making their decisions.
The DIV brings into full play its roles in supporting PCFs to develop sustainably
In recent years, the DIV has been assigned with a lot of new tasks to participate in supporting the sustainable development of the PCF system. Dr Vo Tri Thanh confirmed that the DIV had “engaged” more strongly with such tools as special lending, buying the special bonds of supporting CIs, or participating in Special Control Boards and evaluating recovery options of CIs under special control. However, with a long-term vision, the DIV needs more instruments, and should have more options to choose while keeping the system safe.
In the coming time, to synchronize the legal framework for deposit insurance, use effectively resources of the DIV to support insured institutions and protect depositors, it is necessary to reevaluate, amend, and supplement the DI Law soon. Within a strict legal framework, operations of the deposit insurance organization will surely bring in a new approach, making its operation more and more effective and equip banking management agencies as well as the Government with efficient tools to use in suitable situations. It can be said the deposit insurance organization is extremely important not only for the banking system but also the whole economy. With the companion of the deposit insurance organization, the banking system – the lifeblood of the economy will develop more and more safely and sustainably, while the legitimate rights and benefits of depositors will be always guaranteed.
