Insurance for dollar deposits is still needed

Many National Assembly Members raised a need to insure dollar deposits on fear that local depositors would massively withdraw dollars out of the banking system, the local online newspaper Thanh Nien reported on Oct 4.

Vietnam law makers were discussing a draft law on deposit insurance which stipulated that dollar denominated deposits would not be insured against banks’ insolvency. The Economic Committee of the National Assembly (ECNA) agreed, explaining that the draft law was in line with international practices and would help the country fight against dollarization and stabilize forex market.

Tran Hoang Ngan, Vice President of the University of Economics Ho Chi Minh City once supported the draft law, saying that it would help to reduce dollarization.

However, he changed his mind, warning that depositors will withdraw dollars out of commercial banks if the law takes effect, which weakens the whole banking system as a large proportion of deposits in the banking system are in foreign currency.

Local residents still demanded insurance for their dollar deposits at least 5-10 years to come, Ngan said, adding that investors were losing their confidence in the domestic currency.

Truong Trong Nghia, deputy chairman of Vietnam Bar Federation, shared the same opinion, saying that local residents would switch to deposit at foreign banks, where they could have their dollar deposits insured.

The ECNA agreed that the central bank should be authorized to decide on the deposit insurance premiums and the Prime Minister would set the premium upper limit for specified periods upon the recommendations of the SBV.

Source StoxPlus

Tags: Vietnam banking industry, Vietnam finance, Vietnam financial

Posted by VBN on Nov 5 2011. Filed under Banking-Finance. You can follow any responses to this entry through the RSS 2.0. You can leave a response or trackback to this entry