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The applicable subjects of this decision are insured depositors, insured institutions, deposit insurer and other relevant agencies, organizations and individuals involved in deposit insurance.
Definition of deposit insurance coverage limit
According to Item 1, Article 24, Law on Deposit Insurance, deposit insurance coverage limit is defined as the maximum amount paid by a deposit insurer to cover all eligible deposits of an individual depositor at an insured institution in case insurance payment duty arises.
This coverage limit is decided by the Prime Minister at the proposal of the State Bank of Vietnam’ Governor for each period of time.
The insured deposits are deposits in Vietnamese dong owned by individuals at insured institutions in forms of term deposits, call deposits, savings, CDs, bank notes, bills and other deposits as stipulated by the Law on Credit Institutions.
Uninsured deposits include foreign currency deposits, deposits of agencies, organizations, bearer CDs, and some other types of deposits as stipulated by the law.
The amount of deposits including both principal and interest exceeding the coverage limit will be paid during the bank liquidation as regulated by the law.
Deposit insurance coverage limit application in Vietnam
Decree No.89/1999/NĐ-CP by the Government on deposit insurance dated 1 September 1999 stated that the insurance paid for all eligible deposits (including both principal and interest) of an individual at an insured institutions was 30 million dongs at maximum.
After 5 years of operation, in 2005, by the Decree 89/1999/NĐ-CP dated 24 August 2005 amending the Decree 89/1999/NĐ-CP, the Government raised the coverage limit to 50 million dongs for better adapting to the changing socio-economic conditions in Vietnam.
In the context that Vietnam’s economy and banking system had made remarkable achievements with higher income per capita, the coverage limit should be adjusted compatible with reality to ensure the effectiveness of the deposit insurance policy and better protect depositors.
According to Decision No.21/2017/QĐ-TTg by the Prime Minister, the deposit insurance coverage limit would be raised from 50 to 75 million dongs from 5 August 2017.
Despite the coverage limit increase, the premium rate would remain unchanged in order to avoid burden on insured institutions.
Determinants of coverage limit
As guided by the International Association of Deposit Insurers (IADI), the coverage should be limited, credible and able to cover a majority of depositors while leaving the majority of the value of deposits exposed to market discipline and minimize moral hazard. The newly adjusted coverage limit is considered compatible with the public policy objective of deposit insurance as to protect small-scale retail depositors with limited access to information on banking activities.
Protection of depositors’ legitimate rights and benefits
The Deposit Insurance of Vietnam is a member of the national financial safety net. Deposit insurance scheme is one of the tools used by the Government to protect depositors and maintain the financial safety.
Besides deposit insurance, the Government and the State Bank of Vietnam also have other instruments to achieve this public policy objective. The adjustment of coverage limit is one of the actions taken by policy makers to enhance the effectiveness of depositor’s protection. The Resolution on NPLs settlement has just been adopted by the National Assembly XIV at this session. Besides, the amendment of the Law on Credit Institutions was discussed at session 3 and continued to be put on the discussion list and voted for adoption at the next session. These two bills will serve as a framework for concrete measures to handle shortcomings in the banking activities and the bank restructuring which would ensure the safe and sound operation of credit institutions and protect depositors. The Government has also repeatedly confirmed that in all cases, the people’s deposits are always protected.
Deposit Insurance of Vietnam
The Deposit Insurance of Vietnam (DIV) is a state-owned financial institution founded by the Government in 1999, working as one member limited liability company, of which the whole charter capital is owned by the state. The DIV’s mandate is to protect legitimate rights and benefits of depositors, contributing to the stability of credit institutions system, ensuring the safe and sound development of the banking system.
Until now, there are 1271 insured institutions including state-owned commercial banks, joint-stock commercial banks, foreign bank branches, Vietnam Cooperative Bank, people’s credit funds and micro finance institutions. These institutions are responsible for paying premiums, display deposit insurance certificates at headquarters, branches and transaction points which take deposits from individuals. They are also supervised and examined by the DIV.
The increase of the deposit insurance coverage limit by 50 per cent reflects strong commitments of the Government, State Bank of Vietnam and Deposit Insurance of Vietnam to protect legitimate rights and benefits of depositors.
