Depositors need to be protected by deposit insurance law

Experts have urged building up a deposit insurance law which aims to protect depositors and the banking system, saying that nowadays the need for such a law has become more urgent when Vietnam needs to take drastic measures to attract capital to banks.

The Deposit Insurance of Vietnam (DIV) is the only state run financial institution established by the government that aims to protect depositors and ensure the healthy operation of the banking system. In Vietnam, deposit insurance is compulsory for credit institutions. Though depositors are the direct beneficiaries of deposit insurance, they do not have to pay insurance premiums. This responsibility must be fulfilled by commercial banks.

In the worst case scenario, if a commercial bank collapses, DIV will pay compensation to depositors, 50 million dong at maximum for every depositor. Additional money will be paid after the credit institution is liquidized.

Over the last 10 years, DIV has paid 20 billion dong to 1000 depositors at collapsed credit funds across the country. Its legal capital has been raised from one trillion dong to six trillion dong.

However, experts have pointed out that the currently applied policies on deposit insurance policies have shown a lot of problems that need to be amended. In the talk with the press on the sidelines of the ongoing National Assembly’s session, Dr Cao Sy Kiem, a National Assembly’s Deputy, said that while the deposit insurance policy aims to protect the majority of depositors, the current maximum compensation level of 50 million dong proves to be too low. The level was set in 2005, but there have been so many changes in the last five years, and prices have increased sharply during that time.

Despite the high growth in the capital over the last 10 years of operation, the financial capability of DIV remains limited. According to Dr Le Xuan Nghia, Deputy Chair of the Finance Supervision Council said that DIV must be financially capable enough to shoulder the big financial duties. “Nowadays, if DIV does not have large amounts of capital, it will not be able to insure financial institutions. It will also need to be powerful enough to undertake other functions and duties,” he stressed.

Meanwhile, Dr Duong Thu Huong, Secretary General of the Vietnam Banking Association, pointed out that it is still unclear about the legal position of DIV, and that the coordination among agencies, including DIV, in the national finance supervision system also remains unclear.

“The role held by DIV in dealing with financial collapses proves not to be in accordance with international practice,” she added.

Mai Minh De, Chair of the Management Board of DIV also admitted that the policies applied to DIV show many shortcomings and called for the amendment of policies to make Vietnam’s policies come in line with international practice.

Kiem stressed that it is necessary to build up a deposit insurance law now in order to create long term confidence among the public.

Agreeing with Kiem, Tran Du Lich, former Head of the HCM City Economics Institute said that deposit insurance institutions must be seen as an indispensable part of the financial market, because it is the “safeguard” whom ensures the safety for the whole system.

Huong from a banking association noted that in other countries, the deposit insurance law is always promulgated before deposit insurance institutions are set up, while Vietnam is doing it in reverse. – Vietnamnet