The Deposit Insurance of Vietnam (DIV), as an organization tasked with protecting the legitimate rights and interests of depositors, always focuses on enhancing and improving the efficiency of its operations in accordance with international recommendations to contribute to early detection, warning and prevention of crises as well as to further participate in the process of restructuring the system of credit institutions (CIs) to ensure the safety and soundness of the financial-banking system and social security.
The revised Core principles for effective deposit insurance systems (2014) recommends:
“The deposit insurer should be part of a framework within the financial safety-net that provides for the early detection of, and timely intervention in, troubled banks. The framework should provide for intervention before the bank becomes non-viable. Such actions should protect depositors and contribute to financial stability" (Principle 13 - Early detection and timely intervention).
“An effective failure resolution regime should enable the deposit insurer to provide for protection of depositors and contribute to financial stability. The legal framework should include a special resolution regime” ( Principle 14 - Failure Resolution).
According to these recommendations, the deposit insurer should proactively prepare its human resources and financial capacity to participate in resolution when signs of risk are early detected, in addition to improving system supervision activities, as well as developing a unified, flexible and synchronous resolution mechanism to promptly participate in resolution, ensuring the shortest resolution time. Besides, an effective resolution mechanism should not be limited to reimbursement.
Based on the above recommendations, the actual implementation of the DIV's functions and duties in accordance with the Law on Deposit Insurance and the Law on Credit Institutions (2017) in recent years shows that, through implementing professional operations such as supervision, examination, premium collection management and reimbursement, participation in special control... especially participation in the State Bank of Vietnam’s (SBV) examination of people's credit funds (PCFs) as assigned by the Governor of the SBV, in which some safety issues in the operations of PCFs are examined, the DIV has been increasingly asserting its role in protecting depositors and contributing to ensuring the safe and sound development of the CI system, including PCFs.
However, in the implementation process, there are still limitations and shortcomings related to coordination and sharing information between the SBV and the DIV about PCFs, especially weak PCFs; the roles and duties of relevant agencies in supporting the implementation of options for restructuring and resolving PCFs are still inadequate; the coordination mechanism for the DIV to participate in the process of special control of PCFs is not specific, partly making it difficult for the DIV’s staff to participate in Special Control Broads; mechanisms for coordination with and supporting the SBV's examination of PCFs are not defined in any legal document...
It is necessary to develop and implement a number of solutions to strengthen the DIV's operational activities, further participate in the process of restructuring the system of CIs, especially PCFs, under the instructions given by the Government and the SBV in the Scheme on strengthening and developing the PCF system to 2020 with orientations to 2030; as well as to review the Scheme on restructuring CIs in the period of 2016-2020 and implement new tasks in the Scheme for the 2021-2025 period after being issued, specifically:
Firstly, renovating, enhancing and completing PCF supervising methods at 03 levels as follows:
Level 1: Applying normal supervision to normal PCFs according to general principles and criteria.
Level 2: Applying intensive supervision with its own criteria and methods to troubled PCFs (those that have not yet been placed under special control, those have received SBV's early warnings; those with other special problems).
Level 3: Applying a special supervision mechanism with special criteria and methods to PCFs placed under special control in line with the options for restructuring PCFs placed under special control.
Secondly, strengthening PCF examination in the following 5 forms:
Form 1: Periodic examination - is done according to the annual plan approved by the DIV.
Form 2: Unscheduled examination - is conducted when the examined subject (PCF) shows signs of violation of the deposit insurance law or required by competent agencies.
Form 3: In-depth examination - is thematic examination of troubled PCFs (in-depth examination of insured deposits, deposit insurance premiums, deposit data stored in PCFs...).
Form 4: Special examination - is conducted when: the DIV participates in the special control; the reimbursement obligation arises; the DIV provide loans under special control; the DIV considers premium exemption; resolution plans are developed...
Form 5: Authorized examination - is a form of examination authorized by a competent authority (the Prime Minister, the SBV, required coordination among all levels of the SBV).
Thirdly, focusing on and prioritizing the development and implementation of schemes and plans for training supervisors, examiners and officers participating in special control in terms of knowledge and basic and advanced skills; developing and operating the DIV’s modern technology system to meet the requirements of effective supervision and examination, contribute to the quality of risk analysis, reporting and warning.
Fourthly, proposing the SBV promulgate a specific legal document (e.g. a Circular) on the mandates and responsibilities of the DIV in participating in and supporting the SBV’s examination and supervision of PCFs as the legal basis for DIV to perform its duties; at the same time, giving more specific instructions on the ways and methods to coordinate with the SBV (Bank Supervision and Inspection Agency, SBV branches in provinces and cities) in the implementation of the examination contents and processing post-examination results at the request of the Governor of the SBV to ensure that the examination activities are implemented promptly and effectively.
Fifthly, for the DIV’s effective participation in PCF restructuring process: utilizing financial resources of the DIV such as the DIV’s Operational Reserve Fund at each stage of the weak PCF restructuring process by proposing to issue additional financial support mechanisms for PCFs under early intervention or systematically important PCFs which cannot be dissolved or go bankrupt and are not placed under special control.
Sixthly, setting and completing a mechanism for special lending to PCFs placed under special control; as well as studying to complete the solution to buy long-term bonds of CIs supporting PCFs placed under special control, in which the funding sources used by the DIV for these operations and the mechanism to handle risks from special lending to PCFs placed under special control and the purchase of long-term bonds issued by supporting CIs are clearly identified.
Seventhly, developing and promulgating the DIV’s regulations on participating in assessing the feasibility of recovery plans of PCFs under special control; methods to support PCFs under special control to implement mergers, consolidation, transfer of all contributed capital, compulsory transfer and bankruptcy plans, which clearly specify the forms of assessment, support and the process of assumption and resolution.
Eighthly, continuing to research, improve and upgrade insured deposit data systems at PCFs in accordance with the DIV's regulations, focusing on integrating the DIV's ICM software into PCFs’ accounting software; improving the security of the software for transferring information about deposits from PCFs to the DIV; training officers whose work directly involves insured deposits at PCFs.
Ninthly, researching and developing a deposit insurance policy communication strategy in line with the development strategy of the DIV upon approval from the Prime Minister. In this strategy, an effective policy communication model should be developed, focusing on communication objects at each level as well as diversifying communication forms in accordance with the criteria for each stage established in the communication strategy; In addition, assessing the effectiveness of deposit insurance policy communication activity and communication processes in each locality.
In short, through its operational activities, the DIV has gradually affirmed its position and role as the sole deposit insurer in Vietnam in protecting the legitimate rights and interests of depositors as well as contributing to the restructuring of CIs, especially weak PCFs. In order to strengthen the achieved results and to further participate in the restructuring of CIs, especially PCFs, the DIV needs to continue to renovate professional processes and activities for prompt and effective implementation, contributing to the completion of the assigned tasks.
Ms. Do Thi Hang –Director of Examination Department of the DIV
Ms. Nguyen Hai Ha - Examination Department of the DIV
Research and International Cooperation Department