Trang Chủ
The Decree No. 68/2013/NĐ – CP guiding the implementation of Deposit Insurance Law took effect from August 19, 2013. At present, the coverage limit remains at 50 million dongs which has been applied for 8 years (since 2005). Therefore, one of expectations of depositors is a higher deposit insurance coverage limit.
According to experts and depositors, raising deposit insurance coverage limit will be suitable for the current situation and help attract more idle capital to banks, thereby increasing supply of credits to the economy. Around the world, deposit insurance scheme is an important factor to reinforce depositors’ confidence. Thus deposit insurance is widely applied and a criterion for clients to choose where to deposit money.
“Given high inflation and economic growth rate, rising GDP per capita in Vietnam, the current coverage limit of 50 million dongs has become quite modest. Such a low level can not attract capital to credit institutions” – said Mr Nguyen Sy Dung, Vice Chairman of National Assembly’s Office. Thus, Mr. Dung stressed that the deposit insurance coverage limit should be soon adjusted.
Sharing the same view, Dr Le Xuan Nghia – Former Chairman of the National Monetary and Financial Policy Advisory Board, General Director of the Business Development Institute (BDI) remarked: “Vietnam’s economy has been so far integrated deeply and widely into the global economy, meanwhile the mechanism of budget subsidies has been gradually removed, and hence bank failures are likely to happen. Therefore, it is necessary to enhance the role of deposit insurance, including raising the coverage limit to strengthen depositors’ confidence in the banking industry”.
In recent years, the role of deposit insurance scheme in motivating people to deposit money in banks seems to have not been promoted, partly because of the low coverage limit. More importantly, overheating demand for credit over past years has kept lending and deposit interest rates high. As a result, it is mainly interest rates that play the key part in attracting deposits.
However, over the last year, with a sharp slide on credit and deposit/ lending rates, deposit growth has been not as strong as before though still quite good. The attraction of “high rates” is now less important to depositors, particularly in the current context of financial system where the performance and health of financial institutions is of increasing concern to depositors.
Actually, this is a good chance for deposit insurance scheme to improve its role in protecting depositors, raising public confidence and encouraging people to put their money into banks, and contribute to the refinement of credit institutions and the stabilization of the banking system.
As far as the coverage limit is concerned, many opinions advocate a much higher limit; even some suggest a level of 200-300 million dongs – at least 4 times higher than the current limit.
According to calculations by Vietcombank, in order to fully protect 80 per cent of depositors, the coverage limit should be adjusted up to 270 million dongs. To fully cover 90% of VCB’s personal depositors, the coverage limit must be raised to 500 million dongs. However, the specific number and timing of adjustment should be carefully studied in line with macro economic conditions and monetary policy.
Besides, from Dr Tran Du Lich - the senior economist’s point of view, the coverage limit can be flexibly adjusted for different stages: high level during crises and low one during stable periods of banking industry. “Of course, when setting a specific level, it is necessary to take into account influential factors and create a favorable mechanism to change the coverage limit when needed and avoid moral hazards” – Dr Lich said.
As reported, the Deposit Insurance of Vietnam (DIV) has been actively made recommendations to relevant agencies on adjusting deposit insurance policy to suit reality, especially the issues directly relating to benefits of depositors and insured institutions such as deposit insurance coverage limit and premium. Nevertheless, increasing coverage limit may need more time to take place as the Decree No.68 is just the very first guiding document for the Deposit Insurance Law.
In the coming time, some other documents such as: decisions on establishment of DIV and approval of charter of DIV; circulars by the State Bank, Ministry of Finance, decisions on coverage limit and premiums… will be issued. By the time the legal framework is relatively complete, there will be firm basis for coverage limit adjustment.
Translated by the Department of Research and International Affairs
