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DIV is a State financial institution operating not for profit, in order to protect the legitimate rights and interests of depositors, and to implement the deposit insurance policy. With the specific characteristics of operations that must ensure capital adequacy and self-finance, the activities of the DIV outside the reimbursementand depositor protection need to be calculated and considered carefully in order to avoid affecting the core public policy goals, at the same time, not to stand aside from the process of restructuring credit institutions that are taking place more and more thoroughly.
The Law amending and supplementing a number of articles of the Law on Credit Institutions (2017), effective from January 2018, has specific provisions to create a legal corridor and improve the role and position of the DIV for the process of restructuring People's credit funds (PCFs) and microfinance institutions. Accordingly, the DIV participates in the special control process; participates in the assessment and implementation of plans to recover weak credit institutions; makes special loans to specially controlled credit institutions; buys long-term bonds of credit institutions to support specially controlled credit institutions; participates in the management and liquidation of assets at credit institutions in accordance with law.
In the Strategy for the development of the banking industry to 2025, with orientation to 2030 (issued together with Decision No.986/QD-TTg dated August 8, 2018 of the Prime Minister) has set the task to amend the Law on Deposit Insurance in the period of 2021 - 2025, aims to further enhance the role of DIV and create conditions for DIV to participate more deeply in the process of restructuring credit institutions.
The project on strengthening and developing the PCFs system until 2020, with a vision to 2030, issued together with the Decision No.209/QD-NHNN dated January 31, 2019 of the Governor of the State Bank of Vietnam (SBV) also proposes solutions to improve the role of DIV. Specifically, it is strengthening the role and coordination of DIV in resolving and supporting weak PCFs under special control following the provisions of the Law on Credit Institutions 2017.
Directive No.06/CT-TTg dated March 12, 2019 of the Prime Minister on strengthening solutions to ensure operational safety, firmly strengthen the PCF system, assign tasks to the SBV to study and propose the amendment of the Law on Deposit Insurance to use the deposit insurance premium in order to resolveweak credit institutions and ensure the safety of the PCFs system.
DIV mobilizes resources to support the restructuring process
One of the important activities to empower credit institutions in restructuring progress is special lending. After the Law on Credit Institutions 2017 took effect, the DIV issued the Regulation on special lending to specially controlled credit institutions on September 7, 2018. Recently, this Regulation has continued to be revised and improved to be consistent with the provisions of Circular No.08 of the SBV. Accordingly, DIV makes special loans to credit institutions which are specially controlled in the following three cases: to support liquidity for the credit institution when the the credit institution is in danger of insolvency or falling into insolvency, threatening the stability of the system during the period when the credit institution is under special control, including in case the credit institution is implementing the approved restructuring plan or transfering plan; special loans under the SBV decision with preferential interest rates up to 0% to support liquidity for financial companies, PCFS, microfinance institutions from the professional reserve fund when financial companies, PCFs, microfinance institutions are at risk of insolvency, threatening the stability of the system before the restructuring plan is approved; special loans with preferential interest rates up to 0% to support the recovery for financial companies, PCFS, microfinance institutions from the professional reserve fund according to the approved recovery plan.
The lending principles of the DIV strictly comply with the provisions of the law on special lending, without affecting the ability to reimburse, and ensuring the principle of capital preservation and development.
In order to strengthen its financial capacity, in the first half of 2023, DIV collected deposit insurance fees in accordance with regulations with a total collected amount of over VND 5,000 billion. The temporarily idle capital is invested by the DIV to ensure safety and liquidity. In the first 6 months of the year, idle capital investment has recorded revenue expected to reach nearly 84% of the year plan. Thư DIV's operational reserve fund has reached nearly VND 96 trillion, up 15.9% over the same period in 2022.
Closely monitoring the operation of credit institutions, DIV supervises 100% of insured institutions, thereby detecting and early warning of risks and system insecurity. Also, in the first 6 months of the year, the DIV conducted periodic on-site examinations with 128 insured institutions; examination under the direction of the Governor of the SBV with 12 PCFs.
At the conference on continuing to strengthen the management of the PCF system on July 5, First Deputy Governor of SBV– Mr Dao Minh Tu assessed that Co-operative Bank of Vietnam and DIV are two units that help SBV to examine PCFSs in the context of lack of inspection force from SBV. In addition, the coordination and exchange of information between the SBV branches in provinces and cities, the DIV and the Cooperative Bank of Vietnam has been increasingly strengthened.
For some troubled PCFs, the DIV has closely followed, updated the situation, developed resolution scenarios, and appointed staff to join the Special Control Board at the request of the SBV.
Recently, the DIV has issued a provisional document on the appointment of personnel to hold the leadership positions of the PCFs under special control. This is the basis for the DIV to directly support the process of effective recovering problematic PCF activities, as well as an opportunity to develop high-quality, knowledgeable human resources and practical experience in restructuring credit institutions.
Strengthen the legal framework for DIV in order to effectively participate in the restructuring process
DIV is a state-owned financial institution, directly responsible for implementing the deposit insurance policy. Therefore, the participation of DIV in the restructuring process must always take this public policy task as the center and the core value. The DIV must guarantee the return of deposits to the depositors within the limit of deposit insurance premium when the insured institution falls into insolvency or bankruptcy. Only then, the specific role of the DIV will really come into play.
In recent National Assembly sessions, Chairman of the National Assembly of Vietnam- Mr Vuong Dinh Hue emphasized that the amendment and supplementation of the Law on Credit Institutions and the Law on Deposit Insurance are urgent and should be prioritized for implementation soon. In particular, the amendment and supplement in these two laws need to ensure consistency, synchronization and efficiency. The draft Law amending and supplementing a number of articles of the Law on Credit Institutions has added measures to support troubled credit institutions from an early stage. SBV Governor Nguyen Thi Hong stated that these measures include support from the SBV as the lender of last resort when credit institutions face liquidity difficulties, meeting the payment needs of the people; as well as mobilizing support resources from other credit institutions, financial support from DIV and Cooperative Bank of Vietnam. Thus, credit institutions will have to increase their responsibilities for system safety and reduce financial costs for management agencies in troubleshooting of credit institutions.
Besides, after more than 10 years of implementation, the Law on Deposit Insurance has revealed inadequacies and lack of synchronization with relevant laws. Regulations on powers of DIV under the Law on Deposit Insurance are not consistent with the current system of legal documents on restructuring, hindering the role of DIV in restructuring credit institutions and resolving weak insured organization. The above heterogeneity will limit the effectiveness of depositor protection, as well as the operation of the deposit insurer.
Therefore, the upcoming amendment and supplement of the Law on Credit Institutions and the Law on Deposit Insurance need to increase effective tools for DIV, assign powers with responsibilities, and supplement measures to resolve troubled insured institutions in each situation, each stage. In order for the DIV to have sufficient financial capacity to participate in restructuring process, while ensuring its core public policy objectives, it is necessary to supplement regulations to diversify forms and investment portfolios; adding the form of borrowing from the SBV in case the deposit insurer's capital is not enough to pay insurance and other measures to maintain liquidity of the deposit insurer. Therefore, the DIV will really be the "new breeze" bringing profound changes to the process of restructuring credit institutions as well as ensuring the safety and soundness of the banking system in the coming time.
Communication Department
