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Current deposit insurance premium in Vietnam
The current Law on deposit insurance stipulates that the deposit insurance premium is the amount paid by the insured institutions (commercial banks, cooperative banks, people's credit funds, microfinance institutions and foreign bank branches) to the Deposit Insurance of Vietnam (DIV) to insure the deposit of depositors at the insured institutions.
Thus, people when depositing money at insured institutions do not have to pay deposit insurance premium, and insured institutions are responsible for paying deposit insurance premium in full amount and on time.
The current deposit insurance premium mechanism is the flat rate mechanism (the premium is 0.15% per year calculated on the entire average deposit balance of individuals in Vietnamese dongs at the insured institutions), applied since the establishment of the DIV until now.
DIV is responsible for calculating and collecting deposit insurance premium for insured institutions. This agency said that most of the insured institutions have well complied with the regulations on calculation and payment of deposit insurance premium in accordance with the provisions of the Law on deposit insurance and the guidance of the DIV.
In addition, DIV exempts deposit insurance premium as prescribed for insured institutions under specially controlled; promptly answer and handle arising problems in order to minimize late, excess and underpayment of deposit insurance premium.
This is also a source of revenue to help the DIV's professional reserve fund to grow steadily. By the end of June 30, 2023, the technical reserve fund was more than VND 96 trillion, which increased of about 16% compared to the same period in 2022. With the financial resources accumulated year by year, the DIV may be ready to remburse depositors when necessary for small and medium-sized insured institutions, effectively participating in the process of restructuring the credit institutions system.
International practices on deposit insurance premium
The results of the annual survey of the International Association of Deposit Insurers (IADI) conducted in 2021 show that out of a total of 109 deposit insurers in the world participating in the survey, there are 53 deposit insurers (48.6%) that apply the flat rate deposit insurance premium; 43 deposit insurers (39.4%) apply differential deposit insurance premium; 10 deposit insurers (9.2%) collect premium for flat rate and distinction contracts; the remaining 3 deposit insurers (2.8%) did not respond or had other methods of charging. Deposit insurers tend to apply the flat rate method in the early stages of deposit insurers' establishment because this mechanism is relatively easy to design, implement and manage; then switch to risk-based differential pricing.
According to international practices and guidelines of IADI, in order to implement the differential deposit insurance premium mechanism, certain conditions must be met, of which there are two important conditions:
Firstly, the differential deposit insurance premium mechanism aims to create a competitive incentive for insured institutions and fairness in the fee calculation process, thereby promoting insured institutions to improve efficiency in operations, risk management, contributing to building a developed banking system with healthy, safe and sustainable competition. Accordingly, insured institutions with greater risks will have to pay higher deposit insurance premium and vice versa, and at the same time will have to accept bankruptcy of weak insured institutions;
Secondly, perfecting the legal basis, the system of assessment and classification of insured institutions uniformly in the context of a stable socio-economic situation and a healthy banking system; and some other conditions.
In Vietnam, the differential deposit insurance premium mechanism can only be implemented when the legal basis is completed, including regulations on criteria and methods for formulating the fee framework; assessment and classification of insured institutions and stable socio-economic background, healthy banking system, especially the allowed bankruptcy of weak insured institutions. In the future, the application of differential deposit insurance premium needs to have a suitable roadmap, which requires research and assessment of the actual conditions of Vietnam fully and carefully to avoid negative impacts on the credit institutions system, affecting the confidence of depositors and the stability of credit institutions.
The continued application of the flat rate deposit insurance premium in the current period still ensures compliance with legal regulations, contributing to perfecting the restructuring and resolving of bad debts of the banking system and supporting economic development after the period severely affected by the Covid-19 pandemic.
Communication Department
