For providing depositors with useful information to identify and properly react to rumors relating to the banking system, the reporter had an interview with Mr NgoQuangLuong – Deputy General Director of the Deposit Insurance of Vietnam (DIV).
Reporter: MrLuong, how does the DIV protect depositors? Through which activities?
Mr Ngo QuangLuong: As long as the depositors are not excluded as stipulated by the Law on Deposit Insurance, the dong-nominated deposits at insured institutions are automatically announced and protected by the DIV.
Once a credit institution is established and licensed, it is mandatory to be a member of the deposit insurance scheme. The DIV grants deposit insurance certificates to public institutions. Besides, as ruled by law, the DIV performs its functions of supervision and examination towards member institutions in terms of deposit insurance regulations compliance; collection and analysis of data from public institutions for detecting violations of banking regulations, and then making recommendations to the State Bank of Vietnam (SBV) for timely resolution. When an institute encounters with serious difficulties, the DIV takes part in a “special control” regime as assigned by the SBV. In case that the institution fails to recover, runs into default or goes bankrupt, the DIV reimburses depositors as stipulated by law. After that, the DIV takes part in the management and liquidation of the closed institution’s assets as regulated by the Government.
All in all, the ’s functions are attached with a life cycle of every recognized credit institution. Through the whole process, all DIV’s professional activities directly or indirectly protect legal rights and interests of depositors. Meanwhile, not the public depositors but the deposit taking institutions pay fees for the insurance.
Reporter: So how can depositors recognize an accredited institution?
Mr Ngo QuangLuong: According to the Law on Deposit Insurance, deposit insurance membership is mandatory to all commercial banks, branches of foreign banks, Cooperative Bank, people's credit funds, micro finance institutions which take deposits nominated in Dongand these insured institutions have to post deposit insurance certificates at their headquarters, branches and transaction points which take deposits from individuals.
When you go to do transactions at these institutions, you can see deposit insurance certificates which show their deposit insurance membership and their legitimate status for taking deposits.
Reporter: In recent time, there have been some rumors causing bad effects to the operation of credit institutions. Please let us know if such rumorscausebank runs, what consequences may they and the credit institutions take?
Mr Ngo QuangLuong: Such impetuous actions as drawing deposits and induce other people to draw their money before maturity date make their deposits be paid with interests just as for call deposits, much lower than for term deposits drawn at maturity date. At the same time, this causes difficulties to the credit institutions. Even in some cases, rumors carry no truth but a bank run may induce threats to the liquidity of the credit institutions causing risk of failure. Therefore, both depositors and credit institutions have losses.
Reporter: Could you give some advices for the depositors to deal with such rumors?
Mr Ngo QuangLuong: When adverse rumors concerning credit institutions appear, depositors should stay calm and verify the information. Firstly, depositors should notice the SBV, local government authority, and the DIV for identifying, checking and verifying rumors, while keeping track of official announcements of relevant offices, especially the SBV – top regulator of the banking system.
In the past, there were some cases of rumors spreading and pushing some credit institutions into risks of bank run. However, the SBV and other relevant agencies quickly responded, intervened and stabilized the situation. The credit institutions then soon come back to normal operation.
People who start or spread rumors which cause serious losses may face a fine, an administrative punishment, or even a criminal charge.
Reporter: how about credit institutions, what should they do?
Mr Ngo QuangLuong: In my opinion, in face of not only rumors but also all kinds of risks, the most important thing to do is prevention, not resolved. And the most effective preventive method is to clarify all the information and activities, at the same time listen carefully to the public for timely reaction to bad news.
In case negative information related to your institution or others arise, whether it is right or wrong, all credit institutions should promptly notice the SBV, the DIV and local government authority in order to help functional agencies to stay updated, make the information consistent, and have timely intervention methods. I say so because rumors about one institution may cause domino effects which can damage the all through operation of the whole banking system.
For small-sized institution with limited scope of operation like local people's credit funds and micro finance institutions, other than reporting the SBV, DIV and local government authority for stabilizing the situation, it is essential to have direct communication channels on a continuous basis to avoid a spread of the rumor.
In long term, the public awareness programs should be organized to improve the financial literacy of the community and strengthen depositors’ immunity against rumors. The financial and banking system thereby will be guaranteed to operate safely and soundly.
Reporter: Yes. Thank you very much.