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International experience on financial support in some countries
International experience shows that weak credit institutions are only given financial support when their existence is determined to be "essential" and has an influence on national financial activities. specifically, the failure of credit institutions poses a major threat to the stability of the financial system; the cost of financial assistance is less than the cost of other methods; and maintain access to banking services.
Depending on the legal powers or public policy objectives of each country, the deposit insurance organization can provide financial support in many different ways such as: Financial support for weak credit institutions at risk of collapse ; financial support for transfer activities; financial support for bridge banks or financial support for supporting credit institutions to ensure effective resolution.
In Indonesia, the Indonesia Deposit Insurance Corporation (IDIC) provides financial support in the following forms: Temporary funding; guarantee certain bank loans or provide loans to banks. Subjects receiving financial support are banks facing problems that are under special supervision to restore the bank's liquidity capacity. The cost of support must be lower than the expected cost of not rescuing the bank, including the cost of paying out guaranteed deposits, plus staff salaries, the expected recovery from the sale of the bank's assets.
For banks that do not have systemic influence, in order to receive support from IDIC, they must satisfy the conditions that, after saving the bank, the bank has good business prospects. For banks with systemic influence, IDIC provides financial support by contributing capital with shareholders. IDIC will manage this bank and sell assets within 3 or 5 years. In addition, IDIC can provide financial support during the early intervention stage to prevent a bank from becoming insolvent by sending money to that bank in the form of deposits within one month. Financial support capital comes from the deposit insurance fund. After injecting capital, IDIC will be able to hold shares of that bank for 2 years and sell shares to recover the initial capital spent. In 2008, IDIC participated in the resolution of Century Bank. IDIC took over Century Bank and provided financial support through capital injections. From November 2008 to November 2014, IDIC made multiple capital grants to Century Bank with a total amount of 8.1 trillion Indonesian Rupiah (IDR) (~ 600 million USD). In November 2014, IDIC sold Century Bank to Japanese financial company J-Trust for IDR 4.45 trillion.
In Japan, the Deposit Insurance Corporation of Japan (DICJ) provides financial support according to the provisions of the Law. Subjects receiving financial support from DICJ are: Financial institutions receiving failed financial institutions; Financial institutions failed. DICJ carries out financial support activities through measures such as: Funding; lend or deposit money; asset acquisition; obligations; guarantee; accept obligations; buy preference shares…
For failed financial institutions that do not have systemic influence, DICJ will support merger activities by providing financial support to the financial institution that merges with the failed financial institution. For failed financial institutions that seriously affect the credit system, DICJ can apply measures such as funding and financial support with the support amount exceeding the cost of insurance payments to the institution. financial institution to receive and manage special crises. This measure allows for full protection of deposits and other payment requests. From 2012 to the end of March 2022, DICJ has provided financial support up to 25,464.8 billion yen/182 cases. Of which, funding is 19,031.9 billion yen/178 cases; asset purchase 6,421 billion yen/169 cases; Other measures 12 billion yen.
Practice in Vietnam and some recommendations
In Vietnam, before the Law on Deposit Insurance, Decree No. 89/1999/ND-CP dated September 1, 1999 of the Government on Deposit Insurance, Decree No. 109/2005/ND-CP dated August 24, 2005 of the Government The Government amends and supplements a number of articles of Decree No. 89/1999/ND-CP stipulating that Deposit Insurance of Vietnam (DIV) provides financial support to organizations participating in deposit insurance in the following forms: Loans; guarantee; guarantee; debt redemption and other forms in accordance with the provisions of law. Financial support measures are taken when it is determined that the continued operations of participating deposit insurance institutions that are experiencing difficulty have a role through important for ensuring the safety of the entire system and political, economic and social stability.
During the period from 2005 to 2009, DIV provided financial support to 5 people's credit funds (PCFs) in the form of special loans with a total loan amount of 6.9 billion VND. Thanks to the timely financial support from the DIV, PCFs have guaranteed their ability to pay, meet the withdrawal needs of depositors, ensure the rights and interests of depositors, and avoid the risk of failure, restore people's confidence and improve business operations.
Legal regulations on DIV implementation of financial support
The Law on Deposit Insurance promulgated in 2012 and took effect from January 1, 2013 does not have regulations on financial support operations for DIV. In the context of meeting the urgent requirements of perfecting the legal framework for handling weak credit institutions, limiting and preventing new weak credit institutions from arising, and handling problems and inadequacies in the process of restructuring the system. system of credit institutions, the National Assembly passed the Law amending and supplementing the Law on Credit Institutions (2017) to overcome the inadequacies and limitations discovered in the Law on Credit Institutions 2010; creating the highest legal basis for restructuring the system of credit institutions associated with handling bad debts according to the orientation and the direction of the National Assembly and the Government.
The Law amending and supplementing the Law on Credit Institutions in 2017 has specific regulations to create a legal corridor and enhance the role and position of DIV when participating in the process of restructuring weak credit institutions . The Law grants new functions and tasks to the DIV when participating in the process of restructuring credit institutions such as providing special loans to specially controlled credit institutions; Buying long-term bonds from supporting credit institutions; Participating in assessing the considerations of recovery plans, merger, consolidation, and transfer of all shares and capital contributions of PCFs, microfinance institutions, and financial companies; Participating in developing bankruptcy plans for credit institutions approved by the Special Control Board...
The role of DIV in supporting credit institutions subject to special control is expressed as: Direct support by providing special loans to credit institutions subject to special inspection; Indirect support by purchasing long-term bonds of credit institutions to support credit institutions with special control.
Regarding the direct support function, DIV provides special loans in the following cases: Special loans to support liquidity for credit institutions when credit are at risk of insolvency or fall into a state of insolvency , threatening the stability of the system during the time a credit institution is under special control, including cases where a credit institution is implementing a restructuring plan or an approved transfer plan; special according to the decision of the State Bank loans of Vietnam with preferential interest rates up to 0% to support liquidity for financial companies, PCFs, and microfinance institutions from the professional reserve fund when the company Finance, People's Credit Fund, microfinance institutions are at risk of insolvency or falling into a state of insolvency, threatening the stability of the system before the restructuring plan is approved; Special loans with preferential interest rates up to 0% to support recovery for financial companies, PCFs, and microfinance institutions from the Professional Reserve Fund according to the approved recovery plan.
In recent years, DIV has proactively researched and developed administrative documents on financial support such as Regulations on buying and selling long-term bonds of supported credit institutions, and special lending regulations for credit institutions with special inspection. ... to unify implementation throughout the system; proactively prepare financial resources ready to lend especially to credit institutions with special inspection when they have sufficient conditions to protect the legitimate rights of depositors. However, up to now, DIV has not yet been able to make special loans, the reason is because DIV’s special lending subjects are specially controlled units, these units are facing difficulties. In terms of finance, there is no collateral to make the loan while the special loan condition of DIV is that the unit must have collateral; The SBV has not yet made a decision on special lending; There has not been a decision on which credit institution will be the supporting credit institution.
In order for financial support activities to be effective, contributing to ensuring the safety of banking operations and ensuring the legal rights and interests of depositors, in the coming time, it is necessary to have a comprehensive legal system. Sufficient and synchronous regulations on financial support of DIV, ensuring compatibility between the Law on Deposit Insurance and other laws, especially the Law on Credit Institutions. In particular, fully regulates the contents related to financial support such as cases of financial support implementation; Subjects of financial support, principles of financial support; Handle risks in case financial support does not bring the desired effect.
It is necessary to stipulate the exemption of liability for DIV staff when participating in financial support. This is consistent with Principle 11 of the Core Principles for Effective Deposit Insurance System (IADI, 2014): The deposit insurance organization and individuals who have been working for the deposit insurance organization need to be legally protected to manage the risk of being sued for decisions , actions, or omissions in the proper performance of their duties.
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