Trang Chủ
Over the past 20 years of establishment and development, the DIV has proven itself as an important tool to build trust as well as protect the legitimate rights and interests of depositors at insured institutions, especially in the context that the Government and the State Bank of Vietnam (SBV) have drastically restructured the system of CIs associated with the settlement of non-performing loans.
The DIV protects depositors through professional operations
The DIV was established under the Decision No. 218/1999/QD-TTg, dated November 9, 1999 of the Prime Minister and officially came into operation on July 7, 2000. The DIV was born when the global economic crisis was happening and Vietnam's banking industry was facing many difficulties and challenges, particularly the people's credit fund (PCF) system was suffering from insolvency and bankruptcy. In addition, international organizations also recommended that Vietnam reorganize the banking system and establish a deposit insurance mechanism. It would be the only organization assigned to act as the focal point to implement the deposit insurance policy in order to protect the legitimate rights and interests of depositors, support troubled CIs, and control and prevent risks in banking activities. In practice, over the years, the DIV has made positive contributions to the process of economic renovation and restructuring the CI system, in which the PCFs are concerned – because their depositors mainly live in rural areas. Through the implementation of deposit insurance professional activities, the legitimate rights and interests of depositors have been ensured, people's confidence in the banking system has been increasingly improved, thereby enhancing prestige and promoting the capital mobilization process of CIs.
As soon as the DIV was established, the DIV directly paid out to depositors of a number of PCFs in Kien Giang and Hai Duong provinces as well as participated in assisting troubled funds. Those initial activities of the DIV helped stabilize the sentiments of depositors, and strengthen confidence in the banking system, thereby maintaining order and security in the localities. To date, the DIV has paid out to depositors of 39 insured institutions, ensuring rights and interests of vulnerable and small depositors.
According to the International Association of Deposit Insurers (IADI), deposit insuranceis defined as “a system established to protect depositors against the loss of their insured deposits in the event that a bank is unable to meet its obligations to the depositors”. Thus, deposit insurance is the public commitment of the deposit insurer to return all or part of insured deposits (including principal and interest) to depositors when the insured institution is determined as insolvent or terminated from operation by the competent authority. Although the deposit insurance payout is considered the most direct and practical measure to protect depositors, beyond this measure, it can be said that all professional activities of the DIV are geared towards protecting depositor's interests.
As of September 30, 2021, the DIV protected more than VND 6.4 million billions of deposits at 1,283 insured institutions throughout the Vietnamese banking system. Based on the assigned functions and tasks, the DIV has carried out the on-site examination of the insured institutions as planned, conducted the ad-hoc examination of a number of insured institutions as directed by the SBV’s Governor, conducted the off-site supervision of 100% of insured institutions. When detecting any shortcomings, risks or weaknesses of an insured institution, the DIV will report to the SBV to handle it. As a result, there have been no failures or bankruptcy since 2015. The banking system has operated stably and safely, without any major systemic risks. Therefore, the depositor's interests have been completely guaranteed.
Simultaneously, the DIV has conducted regular and continuous supervision, focusing on weak PCFs, especially those placed under special control by the SBV. Directly participate or coordinate with the SBV’s branches in provinces and cities in developing a plan to deal with weak PCFs, and at the same time, propose to the SBV a number of contents as authorized to protect legitimate rights and interests of depositors during the process of handling the legal entities of PCFs. Over the years, the DIV has made active contributions in implementing supervision, in-depth examination and proposing solutions to deal with weak CIs, particularly when the DIV has been assigned with more roles and responsibilities stipulated in the Law on amending and supplementing a number of articles of the Law on CIs in 2017 in order to participate further in the process of restructuring CIs under the direction of the Government and the SBV such as: participating in granting special loans for CIs, buying bonds of assisting banks, participating in special control, evaluating restructuring plans,…
The DIV has performed well the management of deposit insurance premium collection, temporarily idle capital investment to ensure safety and efficiency, contributing to improving the financial capacity of the DIV. From the initial allocated charter of VND 1,000 billion, as of September 30, 2021, the total assets of the DIV reached VND 79,342 billion, of which the Operational Reserve Fund reached VND 73,615 billion, up 16.99% over the same period of 2020. By the end of 2021, the total assets of the DIV are expected to reach approximately VND 81 trillion, of which the Operational Reserve Fund will reach approx. VND 76 trillion, readily available to pay out to depositors when necessary and participating effectively in the process of restructuring the CI system.
The communication of deposit insurance policies has been actively implemented with a variety of content and forms, together with the expansion of communication channels to remote and isolated areas, directly in the localities where depositors reside, thereby building trust and confidence of depositors towards the CI system.
In addition to the deposit insurance core activities, other professional activities have been organized and implemented effectively and synchronously. The senior human resources and organizational structure of the DIV have been consolidated and stabilized; the staff are professionally trained; the working environment is positive; professional activities are conducted on the basis of a modern information technology system, in which modules of the Financial Sector Modernization and Information Management System Project sponsored by the World Bank have been used effectively; applied research activities have been implemented actively and effectively; international cooperation has been strengthened to contribute to improving the efficiency of the deposit insurance system in Vietnam.
Expanding vision so that the deposit insurer can continue to protect depositors effectively and practically
Looking from the operating model of the long-standing and well-established deposit insurers in the world, it can be seen that no deposit insurer can stand still in a single legal framework, the only model with predetermined functions and duties. As a tool of the Government to ensure the safety of the banking system and protect depositors, the deposit insurer must always closely follow the developments of the banking system to anticipate problems that may arise. In addition, to handle these issues, the deposit insurer also needs to be equipped with effective tools, in accordance with international practices.
Normally when a insured institution is in danger of failure, the deposit insurer will choose a number of resolution tools based on the principle of least cost. At that time, the deposit insurer will compare the costs, among applicable resolution tools, choose the method that incurs the least cost for the deposit insurance fund and has the least impact on the stability of the financial system. In fact, deposit insurance payout is often the last resort, rarely used because it incurs more costs than other resolution methods.
The United States of America (US) is one of the countries which feature successful deposit insurance operating models as risk minimizers. Although there were many bank failures (total 321 banks) during the 2007-2010 crisis in the US, the interests of depositors at these banks were insured and the banks themselves were handled smoothly. It illustrated the very significant role and operational efficiency of the Federal Deposit Insurance Corporation (FDIC).
In Asia, in order to resolve failed insured institutions, deposit insurers in Japan, Korea, and Indonesia are empowered to execute Purchase and Assumption (P&A) transactions, bridge banks, liquidation and DI reimbursement. The Korea Deposit Insurance Corporation also has the authority to implement Mergers and Acquisitions (M&A) transactions. It is should be noted that the tools granted to the deposit insurer are only useful when there is a consistent legal corridor, involving the coordination of many relevant parties.
In the coming time, the DIV will recommend competent authorities to review and amend the Law on Deposit Insuranceto solve difficulties and problems such as the time triggers the obligation to pay deposit insurancereimbursement, the involvement of deposit insurer in restructuring weak CIs such as: participating in the implementation of the restructuring plan of weak CIs and self-implementing the restructuring of weak CIs according to the decision of the competent authority, the calculation and collection of deposit insurance premiums of the insured institution; uninsured deposits; deposit insurance profiteering; borrowings from the SBV in case the deposit insurer's fund is temporarily insufficient to pay deposit insurance reimbursement; the financial mechanism of the deposit insurer... The new legal framework needs to have additional regulations to be consistent with the Law on amending and supplementing a number of articles of the Law on CIs, Decision No. 986/QD-TT dated August 08, 2018 of the Prime Minister on approving the development strategy of Vietnam's banking industry to 2025, orientation to 2030 and Directive No. 06/CT-TTg dated March 12, 2019 of the Prime Minister on strengthening solutions to ensure operational safety and strengthen further the PCF system. It will create the basis for the DIV to implement tasks, especially for newly-assigned tasks.
In addition, the Law on deposit insurance also needs to be amended and supplemented to improve the legal framework in line with international practices to enhance the DIV’s position and role to participate further in the process of restructuring the CI system, thereby better protecting the legitimate rights and interests of depositors. The DIV recommends that it is required to have an extra special reserve fund for deposit insurance payouts. In case the Government has specific measures to resolve the CIs, the DIV can make deposit insurancereimbursement in advance according to the decision of the competent authority without waiting for the insured institution to go bankrupt. Some other resolution tools such as bridge banks will also be actively studied by the DIV through learning from international experiences and will be recommended to apply if feasible.
In the coming time, the DIV will also continue to improve financial capacity and professional competence, innovate and improve operational efficiency; actively participate in and coordinate with the SBV in the process of restructuring and resolving weak CIs; actively promote communication activities on the general policies, banking activities, deposit insurancepolicies and depositors, especially those in remote and isolated areas. The tasks ahead are still very tough, but the DIV will be determined to maintain its role as a fulcrum and a trustworthy companion of the Vietnamese banking system in order to accomplish the goal of protecting the legitimate rights and interests of depositors./.
Dr. Dao Quoc Tinh - Member of the Board of Directors – The DIV’s General Director
Research & International Cooperation Department (translation)
