Increasing deposit insurance coverage limit to better protect depositors


An interview with Mr. Nguyen Xuan Huy- Deputy Director of Vietnam Public Joint Stock Commercial Bank (PvCombank) - Can Tho Regional Branch

By Huong Giang - Department of General Administration - Mekong River Delta Regional Branch - Deposit Insurance of Vietnam

Correspondent: Could you unveil some important factors affecting capital mobilization given the area with many banks operating?

Mr. Nguyen Xuan Huy: Depositing money into banks is the most popular way of saving among people, expecting that banks are not only the safe place to put money, but also can generate interests from deposited principals. Currently, commercial banks are competing fiercely; therefore, effective capital mobilization requires not only flexible and attractive interest rates, good customer service but also customer’s trust in our brand. Customers are assured to deposit into banks, and more importantly, feel confident because their deposits are insured.

Correspondent: Since the Law on Deposit Insurance was enacted in 2012, can you assess the level of customers’ understanding towards this Law?

Mr. Nguyen Xuan Huy: In fact, when making deposits or any transaction at banks, a large number of customers are not aware of deposit insurance. Some of them even question about deposit insurance, rights and obligations of customers and insured institutions. Meanwhile, those who have certain knowledge of deposit insurance policies and regulations are mostly interested in the deposit insurance coverage limit.

Correspondent: The deposit insurance coverage limit of VND 50 million has been set since 2005. In the light of capital mobilization at PvCombank, how does the limit work?

Mr. Nguyen Xuan Huy: In 2005, this limit could fully protect 80% of insured depositors. But today, people’s living standard and their incomes are increasing much higher than 10 years ago. Therefore, the limit of VND 50 million is no longer appropriate for most of the customers whose deposit balances exceed the coverage limit, many of which amount to VND hundreds of millions or tens of billions. At PvCombank, the average deposit balance is higher than the coverage limit. More than 50% of deposits amount to VND 300 million. And so, customers keep complaining about the low coverage limit when reading the Certificate of Deposit Insurance over the counter.

Correspondent: Do you have any suggestion for the adjustment of deposit insurance coverage limit?

Mr. Nguyen Xuan Huy: In fact, neither customer nor credit institution expects failure of credit institutions in order to get reimbursed. However, an appropriate deposit insurance coverage limit surely conveys the strongest and most effective message and contributes to the satisfaction of customers. Recently, people have been mostly concerned about  a proper coverage limit which is able to assure customers, reinforce their confidence to deposit to a credit institution, in return, attract the idle fund from the public. Otherwise, it would be invested in gold or securities. The government, the State Bank of Vietnam and the Deposit Insurance of Vietnam should take into consideration macro-economic indicators, economic conditions, inflation, bad debts and current bank restructuring situation in order to propose a higher deposit insurance limit. In my opinion, the limit should be adjusted higher and kept flexible for changes in the future or set up specific timelines for adjustment frequency in order to maintain the public confidence, at the same time, enable the government to reform and restructure the banking system.

I disagree with the application of blanket guarantee, in stead, it is better to leave a great amount of deposit values uninsured. Accordingly, depositors will carefully pick up banks which are in good condition and reliable. As the result, it will create opportunities for bank to compete fairly.

Correspondent: Do you have any suggestion on deposit insurance activities?

Mr. Nguyen Xuan Huy: Deposit insurance is not simply about making payout to depositors when credit institutions fail. The Deposit Insurance of Vietnam needs to strengthen the supervision, send prudential warnings to weak credit institutions and provide specific assistance to the institutions to improve their operations.

Besides, the Deposit Insurance of Vietnam needs to promote the PR activities to increase the awareness on deposit insurance policies, rights and obligations of credit institutions and customers when making transactions at credit institutions’ counters.

Correspondent: Thank you very much

Translated by the DIV’s Research and International Cooperation Department