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Could you please give an overview of the role of DIV?
The ultimate goal to execute DI policy is to protect depositors and the safe and sound operation of the banking sector, therefore, strengthen the public confidence which is an important requirement in banking activities. It is widely acknowledged that, the failure of several large banks and financial institutions is attributed to the confidence crisis. Article 29, the Law on Deposit insurance stipulates: The deposit insurance is a financial institution established and assigned functions and duties by the Prime Minister. It is a legal entity, operates for non-profit purposes, ensures the safety of its capital and covers its expenses by itself. The DIV is entitled to implement deposit insurance policy, protect the legitimate rights of depositors and contribute to the stable development as well as promote the public confidence in the financial banking sector.
Could you please introduce the new amendments of the Law on deposit insurance compared with the previous regulations?
The ratification of the Law on DI marked a milestone in developing the legislation for deposit insurance activities in Vietnam. It also presented the guidelines and obligations of the Party and State towards DI policy. The Law on DI takes over the advantages of the existing regulations while fixing their disadvantages and studying the international experience. structure, the Law on DI clarifies the legal status of the DI institution, the information exchange between the DI institution and the concerned agencies, the adjustment of insurance coverage limit and premium.
The public is mostly concerned with the fact that the coverage limit of VND 50 million is no longer appropriate and therefore undermines the effectiveness of deposit insurance policy. What is your opinion on this issue and when will the coverage limit be adjusted?
The Law on DI does not determine the coverage limit as a specific value; however, it empowers the Prime Minister, on the proposal of the SBV, to set the coverage limit in order to make it adaptable to the socio-economic changes. The SBV is now working on its recommendations to the Prime Minister in which the coverage limit will be raised.
How about the premium?
Currently, the DI premium is set at 0.15% of total balance of insurable deposits applied to all insured institutions. The flat rate system has the disadvantages that it goes against the market principle which rules that the higher risk the institution encounters, the higher premium should it pay. The Law on DI corrects this shortcoming by stipulating that the Prime Minister shall set the frame of deposit insurance premiums on the proposal of the State Bank of Vietnam (SBV). Pursuant to the premium frame, the SBV shall determine specific DI premium levels for public institutions on the basis of assessment and classification of those public institutions.
However, comprehensive consideration must be put, especially on the improvement of the CAMELS-based financial institution rating systems which is an important basis for the implementation of risk-based premium. In addition, the responsibility for confidentiality of the rating assessment information is essential to prevent the unfair competition which may harm the banking system. This is part of the DI policy renovation in Vietnam which will be disclosed and implemented in the near future.
Please give us your idea about what DIV should do to ensure the effective implementation of the DI policy?
Over the years, the DIV has successfully fulfilled its role of protecting depositors and contributing to the safe and sound banking activities. In the context of dynamic development of the financial market and international integration, the effective implementation of DI policy has several requirements as follows
In terms of institution, the overall harmony and consistence in the DI policy should be assured. The Decree No.68/2013/ND-CP has been issued while other documents to guide the implementation of the Law on DI and Decree 68 are being drafted so that they will be adopted in a timely manner with high quality, especially the content with regards to depositors and public institutions. They will serve as the legal base to support the effective implementation of the DI policy.
In terms of organizing the DI policy implementation, in the near future, the capacity of the DIV, including but not limited to the financial capacity, the human resource quality, and proper implementation methods should be improved. More importantly, PR activities should be accelerated to promote the public awareness of deposit insurance, thus contributing to the enhancement of public confidence in the financial banking system.
Thank you very much!
