Policies on deposit insurance and expectations of people

 Increasing DI coverage limit to benefit depositors among others
Deputy Head of the Ho Chi Minh City National Assembly (NA) Delegation Tran Du Lich pointed out the direct impacts that the DI coverage limit could bring to public confidence in such a manner to attract more deposits in credit institutions.  Experts are unanimous that the flat rate, which has been applied for almost 10 years over 2005-present, should be changed.  Actually, those factors used to assess the DI coverage limit, including inflation rate, the economy's scale, per capita income among others have been continuously on the rise.

Meanwhile, a huge number of people who directly benefit from the DI policies really expect an increase in insurance coverage limit.  Ms.  Tran Thanh Huyen in Tu Liem - Hanoi commented that a surge of coverage limit to 50% of deposits of each depositor would be reasonable, saying that it was funny to deposit an amount of  VND500-600 million or even VND1 billion but to be reimbursed only  VND50 million in case of bank failure.

Mr.  Nguyen Van Dao, Director of Thanh Lang People's Credit Fund in the northern province of Vinh Phuc opined that Thanh Lang was famous for household economic development in the traditional fields of wood-made products and mushroom raising.  The local people had good income and even spent much on savings, with the deposit amounts of more than VND50 million making up 70% of the fund.  “The VND50-million coverage limit is no longer appropriate,” Dao said while noting that “it will be necessary to urgently increase the level up to around VND200-300 million.  By doing so, the rural credit funds, which understand the local, will lure more idle cash to serve economic development.”  

Mr.  Nguyen Van Tam, Member of Party Provincial Committee cum Director of the State Bank of Vietnam - Vinh Phuc Branch voiced that local’s deposits were popularly ranging between VND200-300 million or more while deposit of VND50 million or less was very little.  Tam added that the small insurance suggested people divide their deposits into small amounts.  In fact, the 2005-introduced coverage limit no longer went in line with the current situation.  According to Tam, it would be a big loss for those usually depositing VND 200-300 million to be covered by a modest amount of VND 50 million in case of bank failure.  Tam emphasized that the policy had not encouraged people to deposit their money in credit institutions.

In several countries, the coverage limit is very high.  Some governments have strongly committed to implementing unlimited coverage in case of financial turmoil in order to protect legal interests of depositors.  In addition, high levels of coverage limit affect depositors’ behavior, helping avoid bank runs that lead to system failure while contributing to increasing public confidence.

The DIV has pro-actively made its researches and proposed that the Government and relevant bodies consider the new level of DI coverage limit up to VND200 million and submitted for the Prime Minister’s approval.  The DIV has proposed an increase in coverage limit up to VND1 billion in case of bank runs, as a strong message of the State in protecting depositors.

Expectations for a risk-based premium system

Opinions say that the current flat-rate premium assessment means a similar rating for both good and bad banks.  The regulation does not encourage banks to minimize their risks, making unfair competitiveness among them.  Basically, the flat-rate mechanism is suitable in the early development stage of DI schemes when they are newly established.  Most countries of advanced deposit insurance system implement risk-based DI premium model in which those of higher risks pay more and those of low risks pay less.

"The Government should urgently issue regulation on premium assessment based on flexibility,” Mr. Tran Du Lich suggested while saying that risk-based premium system would create incentives for public institutions to minimize risk, increase transparency, contribute to enhancing stability and safety of the  national financial system.

To date, the new Decree No.68/2013/ND-CP detailing and guiding the implementation of the Law on DI has provisions still of the flat-rate premium, which is similar to those of the Decree No.89/1999/ND  -CP and No.109/2005/ND-CP, with the premiums rate being charged at 0.15 % of average deposits declared at insured institutions.  structure, the new regulation makes no difference in terms of size, ownership type of public institutions, which again has not met expectations of all stakeholders.

Mr.  Nguyen Duc Kien - Deputy Chairman of the NA Committee for Economics (NACE) stressed: "To implement the Law on DI effectively, the authorities should quickly consider setting criteria used for rating risk-based credit institutions and charging proper premium, contributing to ensure fairness  and market order and healthy competition among banks".

Mrs.  Cao Thi Thuy Nga - Deputy General Director of Military Commercial Joint Stock Bank (MB) expressed that "We should consider how to charge DI premium to be consistent with the risk levels of insured institutions on the basis of logic calculation, ensuring transparent policies and creating  fairness in the financial market".  

In the meantime, the DIV has pro-actively studied international experiences and proposed the roadmap for premium assessment, application in a bid to help the relevant agencies consider and make a final decision and  institutions advance their implementation plans.

                                
These ideas, which play as a practical message, have been sent to concerning bodies for an appropriate decision to meet all the expectations of people and insured institutions, contribute to putting DI policies into life, bringing into play the mission of protecting depositors and ensuring a  healthy national financial and banking system.