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Deposit insurance is an important tool that has been implemented in many jurisdictions to protect depositors against risks arising from insured institutions' inability to repay deposits. The primary mission of deposit insurance, in general, is to secure depositors, enabling them to reclaim their deposits when insured institutions fail, contributing to the stability of insured institutions, and ensuring safe and sound development in banking activities.
According to the Core Principles for effective deposit insurance systems, “the deposit insurance system should reimburse depositors' announced funds promptly, in order to contribute to financial stability,” and “in situations where reimbursement is triggered, and there may be extended delays in reimbursements, the deposit insurance may make advance, interim or emergency partial payments.” The International Association of Deposit Insurers also recommends the application of the blanket coverage mechanism in special cases, which has been applied in a lot of jurisdictions and acts as an effective instrument in ensuring depositors’ trust.
In Vietnam, as regulated in the Law on Deposit Insurance, instituting means credit institutions or branches of foreign banks established and operating under the Law on Credit Institutions and permitted to take deposits from individuals . Insured institutions include commercial banks, branches of foreign banks, People's Credit Funds, and microfinance institutions. Insured depositors are individuals who have insured deposits with insured institutions. Insured deposits are deposits in Vietnamese Dong of individuals with insured institutions in the forms of time deposits, demand deposits, savings accounts, certificates of deposit, bills, notes, and other types of deposits as stipulated in the Law on Credit Institutions, except deposits with credit institutions of individuals who own more than 5% of total chartered capital of those credit institutions, deposits in credit institutions of individuals who are members of the Board of Directors, the Board of Supervision, General Directors (Directors), General Deputy Directors (Deputy Directors) of those credit institutions, deposits in branches of foreign-owned banks of individuals who are General Directors (Directors), General Deputy Directors (Deputy Directors) of those branches of foreign-owned banks, and investment in unnamed bills or notes issued by publish institutions.
According to Circular No. 24/2014/TT-NHNN, the obligation to pay insurance money arose from the time the State Bank of Vietnam issues a document terminating special control or terminating the application of measures to recover payment ability or a document not applying such measures, and the compensation financial institution still falls into bankruptcy, or the State Bank of Vietnam issues a document identifying an foreign bank branch as unable to reimbursing deposits to depositors. In the document terminating special control or terminating the application of measures to recover payment ability, it must clearly state that the credit institution cannot recover its payment ability (falls into bankruptcy), which serves as the basis for deposit insurance reimbursement.
Article 24 of the Law on Deposit Insurance stipulates that the insurance limit is the maximum deposit insurance coverage to be paid by the Deposit insurance organization for all insured deposits of a depositor with an institution when insurance payment duty arises. The Prime Minister shall set the insurance limit for each period on the basis of the proposal of the State Bank. According to this regulation, in the case where the total deposit balance of a depositor with an insured institution exceeds the insurance limit, when the obligation to pay insurance arises, the amount of deposit insurance paid by the Deposit Insurance of Vietnam for all insured deposits of that depositor (including principal and interest) will be capped at the insurance limit.
However, according to the provisions of Article 188 of the 2024 Law on Credit Institutions, passed on January 18, 2024, at the 5th session of the 15th National Assembly, after the bankruptcy plan is approved, the State Bank of Vietnam submits to the Prime Minister to decide on the maximum amount of deposit insurance payment for depositors, capped at the insured deposit amount at the credit institution. In case the credit institution placed under special control is a People's Credit Fund, the Special Control Board is in charge of coordinating with the People's Credit Fund placed under special control, the deposit insurance, and the cooperative bank in developing a bankruptcy plan for the People's Credit Fund placed under special control and proposed to the State Bank of Vietnam to submit to the Prime Minister to decide on the maximum amount of deposit insurance payment for depositors, capped at the insured deposit amount at the People's Credit Fund placed under special control.
After the Prime Minister decides on the insurance limit, the Special Control Board will be responsible for coordinating with the People's Credit Fund placed under special control, the deposit insurance, and the cooperative bank to complete the bankruptcy plan for the People's Credit Fund placed under special control and submit it to the State Bank of Vietnam for approval.
When the bankruptcy plan is approved, the deposit insurance is responsible for coordinating with credit institutions placed under special control in reimbursing depositors according to the bankruptcy plan. According to the 2024 Law on Credit Institutions, in case the credit institution, which is an insured institution, placed under special control implements the approved bankruptcy plan, when the Prime Minister decides that the insurance limit equals the deposits of institutions at that credit institution , the Deposit Insurance of Vietnam will coordinate with insured institutions in reimbursing for all deposits of insured depositors.
When depositing money at public institutions, depositors can rest assured, knowing that their rights and interests are always guaranteed. Therefore, legislating the full reimbursement to depositors is in line with the recommendations of the International Association of Deposit Insurers, playing a particularly important role in raising public trust in the system of credit institutions, helping deposit insurance institutions mobilize maximum idle funds in the population, while also preventing bank runs, and contributing to the safe development of banking activities.
Department of Research and International Cooperation (translation)
