For the best realization of the role and mission of deposit insurance scheme


At the moment, the Government and the State Bank of Vietnam (SBV) are actively implementing the Scheme of “Restructuring the system of credit institutions (CIs) associated with the settlement of non-performing loans (NPLs) for the period 2016-2020, in which the role of the Deposit Insurance of Vietnam (DIV) in resolving weak small-sized CIs is specified with more importance, aiming to better protect legitimate rights and interests of depositors, contributing to the stability of CIs, ensuring the safety of banking system, thus ensuring socio-economic stability.

On the occasion of the international conference titled “Small and medium-sized insured institutions - what we can do for them” and the 16th Annual Meeting of Asia Pacific Regional Committee (APRC)- under the International Association of Deposit Insurers (IADI) held from 16th to 17th April 2018 in Hanoi,  a Banking Times correspondent  had an interview with SBV Deputy Governor, Mr. Dao Minh Tu on DIV’s role, as well as regulators’ policy on deposit insurance, and small and medium-sized CIs.

Mr Deputy Governor, would you please share your opinions on the significance of small and medium-sized credit institutions to the development of Vietnam’s economy?

In recent years, Vietnam's banking system has grown steadily in terms of capital as well as assets. Specifically, the total equity capital reached over 700,000 billion dongs (over US$ 31 billion) and the total assets hit over 10 trillion dongs (over US$ 400 billion, twice higher than Vietnam’s GDP in 2017).

The banking system has played a crucial role in ensuring the circulation of capital and contributed significantly to the national economic development. Within the national financial and banking system development, small and medium-sized CIs, typically the system of people's credit funds (PCFs), has grown rapidly with the total of 1,177 PCFs operating in 57/63 provinces and cities across Vietnam, with their total assets of over 100.000 billion dongs (over US$ 4.5 billion).

The system of PCFs has gradually affirmed its position and role of a new model of cooperative in the monetary and credit sector. At the same time, micro-finance institutions and financial companies have also been formed and operated in some areas, facilitating the expansion of the CIs network to mobilize and provide capital to the economy.

Most importantly, these CIs have taken their active role in mobilizing proper resources corresponding to Vietnamese economic characteristics such as up to 70% of people living in rural areas, mobilizing small and scattered capital in place for households, individuals, as well as small and medium sized enterprises (SMEs) with an aim to foster production, thus raising income and improving living standard of local people. Therefore, it will contribute significantly to the development of agricultural and rural economy.

Small and medium sized CIs have advantages of flexibility, quick and direct response, providing service to depositors as well as borrowers with low cost, thus increasing efficiency of the economy, businesses as well as individuals, in accordance with the socio-economic characteristics of our country, individual, cooperative, household economies, and SMEs in the field of agriculture; customs and practices in rural and remote areas.

What lessons, do you think, credit institutions in Vietnam, especially small and medium- sized credit institutions can learn from this conference, Mr Deputy Governor?

Today, the conference held by the APRC-IADI  has a great significance. We highly appreciate this event because it offers a great opportunity to DIV to acquire, share and learn the experience and lessons from other countries, especially in terms of providing deposit insurance to CIs which pay insurance premiums, especially for the PCFs system which has been formed and operated for nearly 25 years; and protecting legitimate rights and interests of people.

In fact, many countries in the region, especially those which have the same economic model and deposit insurance model as Vietnam’s, have a lot of practical experiences in dealing with deposits when small and medium- sized CIs are in difficulties. They are big lessons as well as precious experiences for our country. Furthermore, the conference is organized at the time when we are actively restructuring CIs and the Law on Credit Institutions has just been amended to enhance the role and responsibility of the DIV in dealing with weak CIs, including small and medium-sized CIs in cases of distress.

From a regulator’s viewpoint, being aware of the opportunities and challenges awaiting DIV, I highly appreciate the APRC- IADI’s effort in supporting the DIV to conduct self-assessment of the compliance with the Core Principles for Effective Deposit Insurance Systems issued by IADI and the Basel Committee on Banking Supervision in early 2018.

During the business trip of an expert team of the IADI to Vietnam in early 2018, I had a working session with them and noted their comments that helped us to objectively assess the current deposit insurance policy in Vietnam and form the basis for the DIV to define its development strategy in the future.

On the other hand, I think this conference is also an opportunity for other deposit insurers in the region to enhance cooperation, capacity and share experience, at the same time, promote bilateral cooperation among members. Consequently, it will support the deposit insurers in the region to perform well their role in ensuring the safe and sound development of the financial and banking system in the Asia-Pacific region and over the world.

How will the State Bank of Vietnam give guidance on the application of international practices for deposit insurance system in Vietnam, Mr Deputy Governor?

The policy to develop the deposit insurance system has been clearly defined  during the time of building the Law on Deposit Insurance 05 years ago.

At present, the Government and SBV are actively implementing the Scheme of restructuring CIs associated with the settlement of NPLs for the period of 2016-2020, which identifies the increasing importance of the DIV in dealing with weak small-sized CIs, aiming to protect legitimate rights and interests of depositors, contributing to the stability of CIs, ensuring the safety of banking operations, thus ensuring socio- economic stability.

By the end of 2017, the National Assembly of Vietnam enacted the Law on the Amendments to the Law on Credit Institutions, which added a number of important functions and responsibilities to DIV, thus enhancing DIV’s role in maintaining the stability of the banking system, dealing with deficiencies of weak CIs.

Therefore, the SBV will continue to advise the Government on the issuance of legal documents in order to create more favorable conditions for DIV to play a bigger role in the CIs restructuring. At the same time, this should further promote DIV’s role of supervising CIs’ operations, especially small and medium-sized CIs; thus contributing to ensuring the safety of the CIs system and legitimate interests of depositors.

With a rigorous development history and positive achievements acquired for the past 20 years, hopefully, DIV will continue to take advantage of all its internal strengths and external opportunities to enhance its role and position in ensuring security and safety of the banking system; thus to become an effective and modern deposit insurer moving closer to international practices and standards.

Thank you, Mr Deputy Governor!

Ha Thanh

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