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The deposit insurance coverage limit is the maximum amount that the deposit insurance reimburses for all insured deposits of a person at an insured institution when there is a liability to pay insurance.
In simple terms, if a CI goes bankrupt, Deposit Insurance of Vietnam (DIV) will act on behalf of the Government to reimburse depositors with the prescribed coverage limit.
Coverage limit – From the Law on Deposit Insurance…
According to Clause 2, Article 24 of the Law on Deposit Insurance, the coverage limit is determined by the Prime Minister based on the proposal of the State Bank of Vietnam (SBV) during each period to ensure flexibility in adjusting it according to social-economic conditions and the people's living standards
Under the Prime Minister's Decision No.32/2021/QD-TTg, dated October 20, 2021, regarding the coverage limit, the maximum amount paid out for all insured deposits (including principal and interest) of an individual at an established institution is 125 million VND.
For the portion of deposits (including both principal and interest) that exceeds this limit, according to regulations, depositors are entitled to receive during the asset liquidation process of the CI.
The amount of 125 million VND has been considered and evaluated by the governmental authorities as appropriate in relation to key factors when adjusting the deposit insurance coverage limit for each country, as outlined in the Core Principles for Effective Deposit Insurance Systems (2014) and guidelines from the International Association of Deposit Insurers (IADI), specifically:
First, regarding the ratio of fully insured depositors to the total number of insured depositors.
With a coverage limit of 125 million VND, the DIV guarantees full protection for over 92% of depositors in the banking system, which falls within the recommendation of IADI of 90% to 95% of depositors, meeting international standards.
According to IADI, the coverage limit and scope of deposit insurance need to be periodically reassessed (at least once every 5 years) to ensure it can meet the public policy goals of the deposit insurance system. system. Additionally, the coverage limit should be considered based on various macroeconomics such as inflation, income levels of citizens, the financial capacity of the deposit insurance, the state of the financial banking system, and systemic risks.
>Second, it is necessary to ensure that the coverage limit is appropriate for the financial capacity of the deposit insurance.
The deposit insurance sets aside funds to ensure timely and accurate payments to depositors in the event of a credit institution failure. If the funds are insufficient, a mechanism needs to access special support funds, such as emergency loans from the State Bank of Vietnam or contributions from other financial institutions, to promptly protect depositors' interests and avoid a situation of mass withdrawals.
Along with the growth of the economy and the banking system, the financial capacity of the DIV (DIV) has also significantly increased. From an initial capital of 1 trillion VND, by June 30, 2024, DIV's total assets surpassed 117 trillion VND. Of this, the operational reserve fund (which reflects DIV reimbursement capability as stipulated by the Law on Deposit Insurance) has reached more than 111 trillion VND. This substantial financial growth is an important foundation that enables DIV to effectively fulfill its duty to protect depositors in line with international norms and standards, instilling confidence in the system's stability.
Moreover, the Law on Deposit Insurance stipulates that DIV can receive additional funding sources, including (i) receiving assistance on a reimbursable basis from the State budget as per the Prime Minister's Decision or loans from credit institutions or other organizations guaranteed by the Government in cases where the DIV's funds are temporarily insufficient to reimburse; (ii) receiving financial contributions from domestic and foreign organizations and individuals to enhance operational capacity. This is an important regulation, as in cases where funds are temporarily inadequate to reimburse depositors, DIV can raise additional funds to meet payment needs.
Third, the deposit insurance needs to have access to specific and accurate information regarding the number of depositors, accounts, and the value of deposits corresponding to each coverage limit.
Since 2017, information about insured deposits from insured institutions has been implemented according to DIV’s reporting regulations on insured deposits. As regulated, insured institutions are responsible for providing and directly sending detailed information about insured deposits to DIV.
This is considered a channel of information that helps prevent and limit risks arising in the deposit mobilization activities of public institutions. At the same time, this information serves as a basis for DIV to determine the ratio of the total value of deposits expected to be paid out from the hypothetical coverage limit compared to the total announced deposit balances to assess the appropriateness of the current coverage limit to enhance the role of the deposit insurance policy; and to prepare financial resources, ready to effectively carry out the mission of protecting depositors' rights.
…To the Law on Credit Institutions 2024
According to the provisions of the Law on Credit Institutions (effective from July 1, 2024), during the process of resolving a bankrupt credit institution, the SBV will propose to the Prime Minister the coverage limit for insurance payouts to depositors, which can be up to the insured deposit amount of the individual at the credit institution.
Thus, with the regulations under the Law on Credit Institutions 2024, in addition to the coverage limit of 125 million VND set by the Prime Minister's Decision, in specific cases, the SBV can propose to the Prime Minister to fully compensate depositors. This reaffirms the commitment that when depositing money in an insured organization, depositors can rest assured that their rights and interests are always protected.
In the coming time, to better protect the rights of depositors, it is necessary to study and propose amendments to the Law on Deposit Insurance regarding the coverage limit as well as regulations to enhance the financial capacity of the DIV, ensuring the ability to reimburse; thereby making the implementation of the Law on Credit Institutions 2024 appropriate, effective, and timely in protecting the rights of depositors, in line with the financial capacity of the DIV and international practices.
Communication Department
