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Highest and most comprehensive legal document on DI
2012 marked an important milestone in DI operations in Vietnam when, for the first time, there was the highest and most comprehensive legal document on DI - the Law on DI passed by the National Assembly.
The Law clearly stipulates insurable and uninsurable deposits. It also provides that DI participation is compulsory, that is, except for Vietnam bank for social policies, all credit institutions, foreign bank branches, and microfinance institutions taking deposits from individuals must be members of the DI system. The provisions of the Law ensure the rights and interests of depositors, strengthening confidence of people when depositing money at credit institutions (CIs).
Currently, 100% of insured CIs and foreign bank branches comply with the regulations in the Law. Up to now, there are 1,282 insured institutions, including 95 commercial banks and branches of foreign banks, 01 cooperative bank, 1,182 people's credit funds and 04 microfinance institutions. Consequently, the Deposit Insurance of Vietnam (DIV) is protecting more than 70.8 million depositors, an over 133% increase compared to the time when the Law was enacted.
The Law also adequately stipulates DI reimbursement for depositors in order to create favorable conditions for ensuring the interests of depositors. The trigger for reimbursement obligation, the time of reimbursement process, insured deposits including the principal and interest, up to the coverage limit are all clearly specified in the Law.
Besides, the DIV's operational model has been upgraded and extended with the new powers given in the Law. On this highest legal basis, main DI operations such as the granting and revocation of certificates of DI participation, supervision, examination, DI communication, and participatiion in special control of CIs as regulated by the State Bank of Vietnam, etc. have been implemented timely, consistent with plans, attaining many practical outcomes. This has affirmed the DIV’s position in the financial - banking system, raising public confidence, attracting idle capital from people into the system of CIs, thereby creating momentum for economic growth in Vietnam.
Some contents need to be revised and supplemented
In response to rapid growth in the financial and banking system, the Law is being reviewed to adapt to the new conditions and changes to ensure uniformity in the legal framework, create favorable conditions for CIs to operate effectively. Specifically:
It is nesseary to add more provisions on insurable and uninsurable deposits. In fact, there are still some types of deposits which are not clealy defined as insurable or uninsurable ones, for example: margin deposits, prepaid card deposits, deposits for CI bond purchase.
Stipulations on the display of certificates of DI participation need to be amended and supplemented. Accordingly, a CI is required to have only one transaction point, which is also its head office, where the vertificate of DI participation (instead of a copy of the certificate) is displayed.
It is necessary to determine whether a diffential premium system or a flat rate system is used. The use of a differential premium system is in line with the trend of competitiveness, creates a fair environment and encourages CIs to operate better to enjoy lower DI premiums. However, its application will face some difficulties in Vietnam. Currently, the CI system is still in the restructuring process with the focus on the the redical resolution of bad debts and weak CIs. If applied, differential premiums will increase financial burdens on CIs especially those with a high level of risk, making them encounter even more difficulties in restructuring and resolving bad debts. On the other hand, according to the Law on amendments and supplements to a number of articles of the Law on CIs, CIs placed under special control are exempt from DI premiums. In fact, over the past years, in Vietnam, a flat rate of 0.15% has still been applied on the average balance of insured deposits at the CI. With the current flat rate, the DIV’s collected DI premiums have grown steadily resulting in the stable growth of the Operational Provision Fund, thereby creating a main resource for the DIV to make payouts to depositors when necessary.
The DIV's operational model also needs to be more clearly defined, as the Law only stipulates that the deposit insurer is a financial institution established by the Prime Minister. Regulations on the funding mechanism, investment, examination and supervision, the types of information the DIV is allowed to access, etc. should also be revised to meet the requirements of the new functions and duties assigned to the DIV.
In the current context of the accelerated restructuring process of CIs, it is important to make the Law on DI be consistent with the Law on amendments and supplements to a number of articles of the Law on CIs and create the firm legal foundation for the DIV’s activities (special lending, buying long-term bonds of assisting CIs, etc.) in further participation in restructuring and resolving weak CIs, especially PCFs placed under special control.
According to the DIV, it will actively coordinate with relevant agencies to propose amendments to the Law on DI to effectively participate in the restructuring of CIs, thereby protecting the rights and interests of depositors and contributing to ensuring the safe and healthy operation of the national banking system.
