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Thus, from the level of VND 75 million (fully protecting more than 87% of depositors) applied since 2017 up to now, the coverage limit is expected to increase by more than 66% to VND 125 million. This will be a relatively strong adjustment and the period between adjustments will be shortened compared to the past (the coverage limit of VND 30 million applied from 1999 to 2005; the coverage limit of VND 50 million from 2005 to 2017). This shows the great efforts of the Government, the State Bank of Vietnam (SBV) as well as the deposit insurer in assessing and analyzing the suitability of the coverage limit to maintain its effectiveness as a policy tool to well protect the egitimate rights and interests of depositors, and keep up with macroeconomic conditions and the growth of the banking system in Vietnam.
Also according to the DIV, the coverage limit of VND 125 million is completely in line with the recommendation of the International Association of Deposit Insurance, namely maintaining the proportion of fully insured depositors at around 90-95%.
According to experts, the adjustment of the DI coverage limit will have important implications for depositors, insured institutions and the DIV.
Specifically, for depositors, a higher DI coverage limit means better security and the stronger commitment of the Government, the SBV and the DIV to protecting the legitimate rights and interests of depositors. In normal conditions, the coverage limit will strengthen public confidence in the safety and soundness of the banking system; thereby actively supporting the process of mobilizing idle capital from people to increase financial resources of credit institutions.
If an incident at a credit institution happens, the fact that the majority of depositors are fully protected by the coverage limit will also help reassure their confidence, thereby limiting the risk of bank-runs threatening systemic safety. Especially, small depositors with little access to information will not have to worry about the risk of losing their deposits – their hard-earned money accumulated over many years.
“Thus, if the DI coverage limit is raised to VND 125 million, depositors will be the direct beneficiaries of DI policy. Because, unlike all common types of commercial insurance, the insured insitition, rather than the depositors, is the one responsible for paying DI premiums”- according to an analyst.
According to Dr. Vo Tri Thanh, in addition to factors such as terms or interest rates, the upward adjustment to the DI coverage limit will have the effect of helping people feel more secure when depositing money in banks, People’s Credit Funds, promoting capital mobilization growth of the whole system, thereby creating a driving force for economic growth. "This proves that the increase in the DI coverage limit will clearly bring great benefits to deposit-taking credit institutions" - Mr. Vo Tri Thanh said.
As for the DIV, the increase in the DI coverage limit means financial pressure on the deposit insurer will also rise, since the current premium rate at which the insured institutions have to pay to the DIV will remain the same.
“However, the coverage limit of VND 125 million is relevant to the financial capacity of the deposit insurer. The DIV will have sufficient resources to make payouts when necessary”- the DIV stated.
Overall, a DI coverage limit is an important element of DI policy and has a direct impact on the interests of depositors. Increasing the DI coverage limit represents a timely action of the Government, the State Bank and the DIV to meet the aspirations and increase the confidence of people in banking operations; keep up with international practices and socio-economic development conditions as well as the reality of the system of credit institutions in Vietnam.
According to the DIV, up to now, its capital has always been growing.
As of October 31, 2020, the total assets of DIV reached more than VND 70 trillion, of which the Operational Provision Fund stood at VND 61 trillion. This is a significant financial resource that helps DIV be always ready when reimbursement obligation occurs and participate effectively in the process of restructuring the system of credit institutions through financial assistance provision.
The DIV’s leaders stated that, in the long term, it is necessary to continue strengthening the DIV's financial capacity to suit the size of insured deposits through diversification of investment forms and portfolios, accurate assessment and collection of premiums and at the same time, to develop and improve a backup mechanism to help the DIV access financial support in case the funding source is temporarily not enough to reimburse depositors.
