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Key functions of Depositor Protection
According to experts, within the deposit insurance (DI) operations, supervision and examination are considered the two key functions that support the safe and sound operations of the CIS, including the PCFs system.
Specifically, the supervision operation is regularly conducted based on various sources of information and data concerning the activities of the insured institutions. Prior to the enactment of the Law on DI prior in 2012, DIV executed off-site supervision activities encompassing the following aspects: the control of legal records regarding DI participation, the supervision of the actual operations of insured institutions based on provided reports and information sources from authorized State agencies; the oversight of compliance with DI regulations as well as adherence to safety regulations within banking operations; risk warning and identification of violations or deficiencies requiring rectification within insured institutions.
Following the enactment and enforcement of the DI Law in 2013, the supervision activities of DIV underwent fundamental changes in terms of the monitored subjects, the sources of reporting information, and post-supervision jurisdiction.
Consequently, DIV does not supervise non-bank CI, and the supervised institutions now include microfinance institutions. Moreover, DIV gains access to supervision information from two sources: the insured institutions and data inputs from the State Bank of Vietnam (SBV).
DIV also extends its recommendations to SBV concerning insured institutions that violate banking safety regulations, as opposed to direct warnings to insured institutions as stipulated in previous regulations.
Concurrently, on-site examination stands as an equally vital operation alongside off-site supervision. Prior to the enactment of the Law on DI, DIV examined compliance with DI regulations among institutions within the banking group and closely examined adherence to DI regulations and safety provisions within the PCF group. Starting from 2007, risk-based examinations, a critical content that allowed DIV to assess the risk level of PCFs, were initiated, thereby identifying high-risk funds for timely warning and recommending measures to address violations and rectify deficiencies in governance and management.
According to Law on DI, DIV currently examines the compliance with DI regulations, including: executing provisions regarding application submission, reapplication, and display of DI participation certificates; calculation and remittance of DI premiums; the receipt of insured deposits and the provision of information on insured deposits, along with other required information and reports set forth by DIV. Notably, intensive examination of insured deposits constitutes a focal point of DIV's attention.
Significantly, the direction provided by the Prime Minister in the Development Strategy of Vietnam Banking Sector by 2025 and vision to 2030, which emphasizes that "DIV shall enhance operational capacity, refine organizational structure, elevate personnel competence, apply modern technology to effectively carry out supervisory and examination duties, participate in special control, identify and proactively give early warning of potential risks within insured institutions."
As highlighted in Directive No. 06/CT-TTg dated March 12, 2019, focusing on enhancing solutions to ensure operational safety and solidify the PCFs system, the Prime Minister also entrusted DIV with tasks to participate in and assist SBV's examination function for PCFs. This lays the foundation for DIV to continually bolster its scale, improve its content and methods, and elevate the quality of examination activities, thereby contributing to maintaining the stability of the PCF system and better safeguarding the legitimate rights of depositors, particularly small depositors.
Solid support for PCFs
Amidst the ongoing efforts of the regulatory agencies to restructure the CIS system, particularly weak PCFs, with the focus on detecting and promptly recommending SBV to address any breaches of DI laws, limiting fraudulent activities, and misuse of DI funds in order to better protect the legitimate rights of depositors, DIV continues to effectively implement these two key functions operations.
According to DIV, at the end of the second quarter of 2023, DIV directed all units within the entire system to continuously and regularly monitor 100% of the insured institutions, enhance the supervision reports to detect and early warn insured institutions at risk of endangering the safety of the banking system, thus allowing timely recommendations to SBV for the handling of such violations.
Regarding examination activities, aside from conducting regular examinations for insured institutions, DIV also carries out intensive examinations as directed by the Governor of SBV.
DIV also reports to SBV on the summary of PCFs examination activities as required by SBV, and the coordination among DIV, Cooperation Bank, and SBV's provincial and municipal branches in handling weak PCFs.
Mr. Vu Van Long, Deputy Director General in charge of the DIV, stated that after four years of implementing PCF examination activities as requested by SBV, for the most part, PCFs have adhered well to regulations regarding the acceptance of savings deposits, management and utilization of funds in line with prescribed limits, safety ratios within operations, and lending activities. For violations related to mobilizing savings deposits, inadequacies in mechanisms and policies concerning PCFs, DIV will recommend to relevant state agencies the necessary revisions and supplements to align with practical circumstances, ensuring the safety and robust development of the PCF system.
Mr. Vu Van Long also stated that the implementation of the coordination mechanism for providing and exchanging information among branches of the SBV, DIV and Cooperation Bank, has been actively pursued. So far, DIV has completed signing agreements with 56 out of 57 SBV provincial and municipal branches with operational PCFs and is actively working to finalize coordination regulations with the remaining unit.
To further enhance its role as a reliable companion for depositors and a solid support for the PCF system, Mr. Vu Van Long stated that in the upcoming period, DIV would continue to propose practical measures to improve the DI policy. Specifically, in the Deposit Insurance Development Strategy until 2025, vision to 2030, approved by the Prime Minister, DIV sets forth several important goals. These include enhancing the quality of reporting information; supervisory and examinations activities to detect and give early warning of potential risks to insured institutions.
In pursuit of this goal, DIV’s leadership affirmed that in the 2022-2025 period, DIV would study and propose amendments, supplements to the DI Law, specifically addressing provisions related to the rights and obligations of deposit insurer in supporting the examination and supervision functions for PCFs; carrying out intensive examinations of insured deposits for all weak insured institutions based on supervision results.
During the 2025-2030 period, DIV will continue to enhance risk supervision methods and supervision indicators, focusing on identifying and early warning of potential risks within insured institutions to align with market development and SBV's requirements in each periods. DIV will also apply advanced monitoring models to ensure that insured institutions comply with the legal regulations regarding insured deposits, identify and give early warning of potential risks to insured institutions, ensuring the timely protection of the rights and interests of depositors.
Regarding reporting activities and reliable input sources for executing related operations including examination and supervision, DIV will regularly review and evaluate the operation and improvement of the reporting information system to ensure complete and reliable information. Alongside this, DIV will enhance the effectiveness of cooperation and information sharing between DIV, the SBV, and relevant agencies. DIV will establish a comprehensive and synchronized information system and database (including sources from the SBV and the database of insured deposits).
Based on the reporting information system, DIV mentioned that it will regularly assess the operational status of insured institutions to forecast the possibility of deposit insurance payouts and develop plans to ensure the sources of funds for DIV in case insured institutions are unable to repay deposits to depositors or go bankrupt.
With the principle of always safeguarding the legitimate rights of depositors in all situations, DIV stated that it closely monitors the activities of credit institutions through effectively implementing DI tasks, in which, supervision and examination will contribute to ensuring the safe development of insured institutions. It is expected that in the near future, with the National Assembly, the Government, and the SBV amending and supplementing the Deposit Insurance Law with relevant content regarding these two key functions, DIV will increasingly fulfill its position, role, and mission in protecting depositors and be a solid stronghold of the PCFs system.
Department of Research and International Cooperation (translation)
