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The Deposit Insurance of Vietnam (the DIV), which is a State financial institution operating for nonprofit purposes, plays a very important role in undertaking the State public policy. However, to minimize burdens imposed on the State budget and play their role as a co-beneficiary and in order to enhance the sense of self-improvement, insured institutions also have to make financial contributions through deposit insurance premiums.
Law on Deposit Insurance stipulates that Deposit insurance premium means the amount of money an insured institution must pay to the DIV in order to have the deposits of the insured depositors with the insured institution guaranteed. According to the Law on Deposit Insurance, the Prime Minister shall set the frame of deposit insurance premiums based on the proposal of the State Bank. Pursuant to the premium frame, the State Bank shall determine specific insurance premiums for insured institutions on the basis of assessment and classification of those insured institutions.
In the world, there are two types of deposit insurance premium in application, including: flat deposit insurance premium and risk-based deposit insurance premium.
Flat premium is application of a common level of premium to all insured institutions. According to experts, application of flat premiums facilitates premium calculation and payment and does not cause too much pressure on deposit-taking institutions when they have newly participated in the deposit insurance system. The flat premium mechanism is suitable for the pay-box system, which is established to mainly undertake the task of reimbursing depositors when insured institutions is incapable of paying deposits to depositors or go bankrupt, confirms the commitments of the Government on protecting depositors. However, flat premium has some disadvantages since it does not help to stimulate deposit-taking institutions to restrict operational risks and reduce the fair competition among insured institutions.
Risk-based premium is application of premium to each insured institution on the basis of risk assessment. Insured institutions with high risk will incur high premium and vice versa. This method stimulates competition, motivates insured institutions to improve operational effectiveness and minimizes risks. And therefore, depositors’ right will be better ensured and burdens on the State budget in dealing with insured institutions failures will be also lessened. This premium mechanism is more suitable for pay-box plus or risk-minimizer system. In addition to protecting depositors’ rights to the fullest, the deposit insurer can effectively participate in the supervision over banks and other credit institutions.
In Vietnam, since its establishment, the DIV has performed ex ante and flat-rate collection of premium and and the rate is 0.15% of the total average deposit balance of insured deposits at insured institutions. This has helped the DIV to be very active in financial resources management in order to have quick response when there is a need for reimbursement, thus helping to protect depositors’ legitimate rights and interests and minimizing threats of social insecurity at locations where obligation of reimbursement arises.
The DIV has been actively researching on the topic of the establishment of risk-based deposit insurance premium system for insured institutions for application in Vietnam, oriented towards compliance with international practice, and at the same time creating momentum for deposit-taking institutions to improve their operational quality for a lower level of premium.
Currently, the Law on Deposit Insurance, the Circular No 312/2016/TT-BTC and Circular No 20/2020/TT-BTC on financial mechanism of the DIV stipulates that the Operational Provision Fund of the DIV is formed from the following sources: collection of annual deposit insurance premium; income from investment from temporary idle capital after partial deduction to cover the DIV’s operating expenses as prescribed; unclaimed insurance payment as regulated; remaining amount (if possible) from liquidation of assets of insured institutions as prescribed; annual financial revenue and expense difference after setting aside for the Development Fund and Awarding and Welfare Fund as prescribed; and income from special loans to credit institutions under special control. Thereby, deposit insurance premium paid by insured institutions to the DIV is put into the Operational Provision Fund.
According to the Circular 312/2016/TT-BTC dated 24/11/2016 by the Ministry of Finance guiding the financial mechanism of the DIV, all deposit insurance premium paid by insured institutions to the DIV which is put into the Operational Provision Fund will be used to reimburse depositors when insured institutions fail to make payment of due debts and the competent State agency has a document terminating their operations for liquidation or the court has a decision on opening procedures of asset liquidation as prescribed in the Bankruptcy Law.
Besides the reimbursement to depositors, the DIV is also permitted to use its Operational Provision Fund for special loan when participating in special control over credit institutions according to the Law amending, supplementing some articles of the Law on credit institutions in 2017, the Law on Deposit Insurance (clause 13 Article 13), the Circular No 08/2021/TT-NHNN date 6/7/2021 (substituting the Circular No 01/2018/TT-NHNN) by the State Bank on special lending to credit institutions under special control and guiding documents of the DIV.
Since its establishment until now, the size of the DIV’s Operational Provision Fund has always grown higher every year. By 31/12/2021, the operational provision Fund of the DIV reached 75.9 trillion dongs, an increase of 18.04% over the same period of 2020. According to experts, with a fairly strong growth of financial resource that is built up every year, the DIV will be ready to reimburse depositors when necessary to ultimately protect their rights and effectively participate in restructuring the system of credit institutions; while at the same time contributes to increase populace’s confidence in deposit-taking institutions.
