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Overview of temporarily idle capital and investment efficiency
The deposit insurance operates on the principle of collecting fees to pay when obligations arise. Temporarily idle capital invested is a source of deposit insurance premiums and other sources of revenue (maturity of investments, interest from investment activities, other revenues, etc.) left behind. The capital level that ensures the operating expenses of the deposit insurance organization and is not temporarily used to pay deposit insurance and handle failures is invested to generate profits and increase the size of the deposit insurance fund. Temporary idle capital of the deposit insurance organization can be used to invest according to the principles of ensuring safety and capital development, ensuring the liquidity of the deposit insurance organization and in accordance with current legal regulations.
Effective investment will improve the financial situation of the deposit insurance organization, creating favorable conditions for the development of the deposit insurance organization because investment efficiency brings profits to supplement investment capital, contributing to resource growth. At the same time, it creates conditions for deposit insurance organizations to strengthen their financial capacity and position, fully implementing deposit insurance policies when required. To improve investment efficiency, investment capital is required to be stable and grow steadily after considering the following factors: toll collection plan, cost planning, salary planning, income planning from investment activities and post-investment management and recovery methods.
Thus, improving investment efficiency contributes to strengthening the financial capacity of the deposit insurance organization, creating accumulation, contributing to improving the reputation of the deposit insurance organization. Consolidating and improving the investment efficiency of the deposit insurance organization is truly necessary for the long-term survival and development of the deposit insurance organization. To improve investment efficiency, in addition to the efforts of the deposit insurance organizations themselves, the economy is required to be stable and there must be a suitable mechanism in terms of regimes, policies, and effective coordination. between the Government, the State Bank of Vietnam, and State management agencies to create a favorable environment for investment activities of the deposit insurance organization.
Investment orientation according to the Deposit Insurance Development Strategy
The deposit insurance development strategy to 2025, with orientation to 2030 (approved by the Prime Minister under Decision No.1660/QD-TTg dated December 30, 2022) has the content of improving the financial capacity of the the deposit insurance associated with the specific goal of "Strengthening the financial capacity of deposit insurance organizations... proposing solutions to increase charter capital from self-accumulated sources, supplementing loans from the State Bank Vietnam and diversifying investment portfolio of temporarily idle capital...". Developing plans and proposals to diversify investment portfolios in accordance with the Deposit Insurance Development Strategy is the basis for DIV to have the best preparation to soon realize the goal of strengthening financial capacity and to ensure that DIV can establish a variety of plans with basic but sustainable practical solutions to ensure safe investment activities and improve efficiency and effectiveness in using idle capital.
It can be seen that, with its current financial capacity, DIV can meet the payment requirements for the people's credit fund quite well. However, for banks, the ability to meet payment requirements of DIV is still limited.
Therefore, DIV needs to have a specific plan to continue strengthening its financial capacity in the coming time, especially through improving the efficiency of investment activities.
Current status of using temporary idle capital at DIV
Period from before 2012:
During this period, the content of management and use of DIV's capital resources is specified under Decree No. 89 and Decree No.109. Specifically: Forms of deposit are clearly defined including depositing money at the State Treasury, State Bank of Vietnam or other State-owned commercial banks and joint stock commercial banks graded A by the SBV. Investment forms of buying Government bonds and treasury bills include buying Government bonds, bonds and treasury bills of the SBV, bonds and treasury bills. Shares of state-owned commercial banks or joint-stock commercial banks are rated A by the SBV. The clear regulation of the above two forms of investment is the basis to ensure that DIV is only allowed to deposit money in credit institutions rated safe by the SBV.
Period from 2013 to present:
The Law on deposit insurance and its bylaws stipulate that the DIV has the responsibility to manage, use and preserve the deposit insurance fund capital. DIV can use temporary idle capital to (1) buy government bonds, (2) buy SBV bills and (3) deposit money at SBV.
In particular, two documents stipulate open conditions for DIV when depositing money at the SBV (Circular No.24/2014/TTNHNN) and selling government bonds when payment is needed (Circular No.312/2016/TT-BTC) are important legal basis to help DIV make investment activities easier and remove difficulties once the Law takes effect.
Thus, the investment forms allowed by DIV according to the Law are forms of capital use with high safety and liquidity, in accordance with international recommendations on choosing the safest investment products and financial instruments: Government bonds and deposit money at the SBV. During 10 years of implementation, DIV has always complied with the Law on deposit insurance on investment in natural resources - only focusing on buying government bonds and depositing money at the SBV - ensuring safety principles and capital development, contributing to promoting stable capital growth. This is a fundamental difference in the investment practices of DIV compared to before.
As a result, on average every 5 years, the capital source of DIV increases about twice (from 1,000 billion VND initial capital, as of June 30, 2023, total capital is more than 95 trillion VND; total accumulated investment is approximately 100 trillion VND, accounting for 95% of total capital). This shows that DIV has not wasted capital. In particular, investment revenue accounts for over 99% of DIV's total revenue with a growth rate of about 11% in the period 2015-2022 - thereby helping to accumulate and increase capital, contributing to improving the financial capacity of DIV, improving its position and ensuring the implementation of public policy goals about deposit insurance.
However, the investment portfolio of DIV according to the Law still has many limitations. Government bonds are the main investment channel and mainly bring good revenue to DIV (accounting for over 99%; deposits at the SBV only account for a small proportion). Regarding SBV bills, according to current regulations, DIV is only allowed to buy SBV bills on the secondary market. Due to the short term of bills (mainly terms of 7, 14, 28 days), it is difficult for DIV to find selling partners; while technical conditions, transactions and security requirements are still difficult for DIV).
In addition, a series of new tasks in the process of restructuring credit institutions subject to special inspection are prescribed in Law No.17/2017/QH14 amending and supplementing a number of articles of the Law on Credit Institutions No. 47/2010/QH12 stipulating "The State Bank of Vietnam decides on the purchase of long-term bonds by supporting credit institutions by the DIV" and "Special loan with preferential interest rates up to 0% from the DIV from the Professional Reserve Fund"; The draft revised Law on Credit Institutions stipulates: "Special lending credit institutions are entitled to receive long-term deposits from DIV with preferential interest rates according to the decision of the SBV". At the same time, DIV is not allowed to collect deposit insurance fees from credit institutions subject to special control and carry out restructuring tasks before the period when credit institutions are subject to special control. However, there is currently no legal guidance document. There is a lack of specific regulations on the use of capital for restructuring, especially the lack of regulations on limits on capital used for purposes other than payment, and on the role of DIV in deciding on the use of resources.
Solutions to improve the efficiency of using capital resources of DIV
Effective capital investment policy is an important content to ensure financial stability of the deposit insurance organization. To improve the efficiency of using DIV's capital resources in the direction of safety, growth and efficiency, in the coming time, DIV needs to implement solutions as well as propose to relevant agencies to guide and promulgate regulations to handle the above problems in order to effectively use capital resources for the process of restructuring credit institutions and diversifying investment channels.
First, increase investment capital. To increase capital in the most timely manner available for investment requires the capital source for investment to be stable and grow steadily, as a basis for reinvestment; management before - during - after investment and expenditure management must comply with the law and the steps in the implementation process, specifically:
- Toll collection plan: It is necessary to develop an accurate toll collection plan to ensure that fee calculation and collection is timely, quick, with the correct amount, increase efficiency as well as reduce time and personnel in implementation. A detailed construction fee collection plan will support organizations participating in deposit insurance to pay fees on time and in full, thereby helping to form a stable and available input capital source.
- Regarding management of investment revenues, monitoring and post-investment management: Profits earned from investment activities contribute significantly to capital growth. The investment process of DIV therefore must ensure the goals of preserving, developing capital and high revenue growth. The monitoring and management of post-investment capital (from interest income to maturing investments must be done closely, ensuring correct, complete, and timely collection of principal and interest on investment capital). It is important to supplement available financial resources to maintain and promote reinvestment and capital turnover.
- Regarding effective cost management: DIV needs to develop a specific and detailed spending plan, ensuring it is more realistic; At the same time, manage and monitor costs effectively and economically. It is necessary to build an accurate spending plan to ensure the best estimate and reserve of capital for investment, avoiding affecting the available idle money at each time.
Secondly, continue to promote and promote current investment portfolios, effectively invest in government bonds in both primary and secondary markets. Current investment forms, channels and tools need to continue to be implemented implemented in the direction of inheriting current legal documents. Based on the approved annual plan and 6-month investment plan, on the basis of available temporary idle capital at all times, along with the direction of the Chairman of the Board of Directors and General Director of DIV to implement the investment plans. Investing capital each time ensures safety and efficiency through investing in government bonds in the secondary/primary market and depositing money at the SBV.
In addition, DIV must focus on research and collection of financial and monetary market information and related data to propose appropriate portfolios, terms, markets, and investment structures - especially investment projects. Estimate a reasonable investment interest rate to calculate and estimate revenue, ensuring feasibility. To improve the quality of research activities, promote the professional expertise of the market research team and promote the coordination of research and exchange between the market research team and the investment implementation team, it is necessary to ensure the be independent in research work, establish critical thinking and increase responsibility.
From an administrative perspective, post-investment management and monitoring helps to best screen and handle problems that may arise related to securities in terms of delayed depository accounts, late payment of principal and interest, or late payment of principal and interest. Incorrect principal and interest balance due. Later, when investment tools are expanded, tracking principal & interest must be done not only for government bonds but also for deposits and valuable papers of commercial banks that DIV purchases. Therefore, post-investment management and monitoring is an important basis for DIV to monitor invested capital; Make statements and compare investment balances with the SBV, commercial banks, and depository units after transactions occurring on a monthly, quarterly, and yearly basis; and help urge the recovery of principal and interest on due investments according to regulations and authority.
Thirdly, supplement the investment portfolio according to the Deposit Insurance Development Strategy to 2025, with orientation to 2030; which focuses investment portfolios to ensure safety and liquidity goals.
Adding regulations allowing DIV to: (i) Use temporary idle capital to buy government bonds; buy SBV bills from credit institutions; buy local government bonds; Deposit money at commercial banks; Buy bonds, promissory notes, bills, and certificates of deposit issued by commercial banks; and (ii) sell government bonds; SBV bills; local government bonds; bonds, promissory notes, certificates of deposit and other valuable papers held; Withdraw money from commercial banks.
More specifically, in addition to the investment tools being implemented according to current regulations, it is necessary to: (i) add new forms & channels of investment tools being implemented to ensure consistency between legal documents; (ii) proposing to continue to allow previously implemented investment tools, and (iii) proposing a number of new investment tools that have not been implemented in accordance with the Deposit Insurance Development Strategy.
Fourthly, complete the legal basis related to capital investment activities. In the context that almost all of DIV's natural resources are used to buy Government bonds, to ensure revenue and promptly meet payment capacity, DIV must be allowed to sell Government bonds in a timely manner to best protect legal interests. The highest legal document is the Law on deposit insurance, which does not have content stipulating that DIV can sell government bonds when necessary, while Circular No.312/2016/TT-BTC dated November 24, 2016 of the Ministry of Finance (Point b Clause 5 Article 5) mentioned that DIV is allowed to sell government bonds and SBV bills to pay insurance premiums. Thus, DIV will be able to sell government bonds and SBV bills. The remaining issue is to proactively coordinate and propose relevant agencies so that when the Law on deposit insurance is amended in accordance with current legal documents, the sale of government bonds will be implemented appropriately and the roadmap for selling government bonds will be implemented. This is concurrent with the roadmap to gradually increase the proportion of secondary bond trading. This is not a radical solution, but it helps solve the payment liquidity difficulties that DIV may face. In addition, supplement investment portfolios for DIV in the Law on deposit insurance to be consistent with the Deposit Insurance Development Strategy.
Although currently, DIV does not have to use the method of borrowing and receiving capital support, to ensure reserves and readiness for less stable economic scenarios and banking risks that may negatively impact the legal obligations on deposit insurance, it is necessary to propose to the competent authorities to provide detailed and specific instructions on cases where DVI must and is supplemented with capital from the above sources according to the provisions of the Law on deposit insurance in order to minimize the capital shortage (if any) - with contingency scenarios - can affect the availability of idle cash for investment or at least ensure there is always reserve capital to implement deposit insurance policies while not interrupting capital investment activities.
Fifthly, innovating and perfecting investment human resources work: DIV needs to pay special attention to staff work, from recruitment, training to appointment to build a team of specialized investment staff with sufficient resources. capacity, qualifications, bravery and professional ethics in mind investment in general and bond investment in particular, contributing to ensuring the organization and implementation of systematic, safe and effective investment.
Although the staff directly involved in investment work has the ability to comprehend and undertake stages in the investment process, many officials are capable of valuing, analyzing financial markets and making projections. Report the trend of interest rate changes in the near future, propose to advise the department's leaders to make effective investment decisions, to be able to promptly grasp the exciting pace of development of the market, and lead officers. DIV's private sector needs to constantly learn and equip themselves with professional knowledge and acquire new knowledge.
Sixthly, improving digital technology in investment activities: Currently, DIV is participating in buying government bonds on the primary market in the form of bidding (connected to the HNX system, with direct non-competitive bidding interest rates and competitive interest rate bidding through bidding members), in the future, DIV will participate in many operations requiring high technology (bidding software, deposit software, digital signatures...). DIV needs to prioritize establishing a separate and independent internet connection to serve investment operations, equipping additional backup internet connections to ensure smoothness and improve network connection speed for fast and effective connection. to credit institutions, minimizing incidents and ensuring transparency; Have a plan to upgrade the internal email system to ensure smooth operation, minimize and promptly handle when the system is overloaded leading to communication interruptions. In addition, moving forward to use digital signature technology to support DIV and partners to sign contracts quickly, safely, with high confidentiality and data integrity.
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