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Based on the premium framework approved by the Prime Minister, the SBV designs specific premium rates for the insured institutions on consideration of the assessment and classification results of these institutions (i.e. deposit insurance premiums are calculated on the basis of the risk level of insured institutions). However, the Deposit Insurance of Vietnam (DIV) maintains applying the flat premium rate of 0.15% of the annual average balance of insurable deposits of individuals at an insured institution.. Some advantages of this premium system include the convenience in management as well as in premium calculation and collection. However, the flat rate does not encourage insured institutions to improve operational quality in order to enjoy lower premium rates.
Meanwhile, risk-based premium system creates a fair and competitive environment for insured institutions, contributing to reduce risks, especially to prevent moral hazards in banking activities. It is recommended that the SBV conduct researches and deliver instructions of the premium collection based on the assessment and classification of insured institutions in the coming time.
Regarding the deposit insurance coverage limit, the Article 24 of the Law on Deposit Insurance specifies that a coverage limit is the maximum amount that a deposit insurer shall pay to set off all insurable deposits of an individual depositor at an insured institution upon arising any obligation of insurance payment. The Prime Minister shall specify the coverage limit of insurance payment at the request of the State Bank of Vietnam from time to time.
From 2005 to present, DIV has applied the coverage limit of VNDs 50 million. In 2005, this limit guaranteed full protection for about 85% of insured depositors. According to international practice, scope and coverage limit are reliable standards reducing moral hazards without undermining market disciplines. Deposit insurance coverage limit must be identified in such a way that the majority of depositors in banks are protected and at the same time a significant percentage of the value of deposits is not insured. This requires depositors to consider before deciding to choose a good bank to deposit. In case a significant proportion of deposit value is protected, moral hazards must be minimized by strict monitoring regulations and mechanism as well as other supervisory tools of deposit insurers.
With the above-mentioned standards, it is believed by many experts that the current coverage limit is rather low on the consideration of the per capita income and annual inflation rate of Vietnam. For better protecting benefits of depositors, psychological stability, ensuring public confidence in banks, it is vital to conduct researches on increasing the coverage limit. According to the recommendations by the International Association of Deposit Insurers, the coverage limit should be at 2-5 times of the national average per capita income. At the same time, deposit insurance coverage limit should be reviewed (every five years) to ensure the conformity with the public policy objectives.
