Deposit insurers help credit institution restructuring

The DIV plays an increasingly important role in protecting rights and interests of money depositors

DIV involving credit institution restructuring

The plan will thoroughly address the bad debt problem and minimize the number of weak credit institutions.

Under the plan, regulations will be supplemented to allow the DIV to address bad debts, restructure weak credit institutions (including people’s credit funds and micro-financial institutions), and ensure interests of organization and individual money depositors. The State Bank of Vietnam shall suggest that the government recommend the National Assembly to issue a law on amending and supplementing some provisions of the Law on Credit Institutions and relevant laws, including preparation of a specific legal framework for dealing with weak credit institutions in accordance with Vietnam’s conditions and international practices; and supplementation of regulations on solving the cross-ownership problem, controlling the abuse of management, administration and major shareholder rights to manipulate credit institution activities, addressing banking operation-related problems, and allowing the DIV to participate deeper in addressing bad debts and restructuring weak credit institutions.

The DIV has been efficiently implementing deposit insurance policies. As of December 31, 2016, there were 1,267 credit institutions awarded the deposit insurance certification, including 95 commercial banks, cooperative banks, 1,168 people’s credit funds and three micro-financial organizations. The DIV is conducting monthly, quarterly and annual supervision of all insured institutions. Through reports by insured institutions, the State Bank and other relevant organizations, the DIV analyzes and assesses the performance of insured credit institutions to detect violations and or signs of violation of credit institutions so it can propose that the State Bank have timely punishment measures.

The DIV’s above-mentioned efforts prove its important role in protecting the legitimate rights and interests of money depositors, increasing the public trust in the banking and financial system, ensuring the credit institution system’s security and sustainable socioeconomic development.

Promoting deposit insurance

With the function of remote monitoring and supervision of the observance of laws on deposit insurance for reporting to the State Bank of Vietnam, the DIV is in charge of collecting, analyzing and handling information about organizations as deposit insurance buyers to propose that the State Bank timely deal with infractions of bank and banking system security regulations.

According to the draft law on amending and supplementing the Law on Credit Institutions, the DIV is licensed to provide loans as financial assistance and participate in special control and assessment of credit institutions, which are under special supervision, and their recovery plans to help them avoid taking a collapse risk. The DIV’s financial assistance will help small credit institutions with temporary financial difficulties stabilize their operations.

The fact that the government recently decided to raise depositors’ insurance compensation to VND75 million is expected to increase the public trust in the banking system, as the compensation is a core measure for implementing depositor protection policies. Deposit insurance organizations can maximize their efficiency upon restructuring and stabilizing the system of credit institutions only when a mechanism on close coordination between them and other banking supervisors exists. According to the International Association of Deposit Insurers (IADI), fundamental principles for deposit insurance system development include 1) ensuring that deposit insurers have sufficient powers and financial capacity to make a timely interference in cases of credit institution collapse; 2) issuance and implementation of early warning and comprehensive risk control policies; and 3) clarifying responsibilities for dealing with a dispute between the State Bank, the watchdog, the government and the DIV. The functions and powers of these agencies are clearly described in relevant laws to ensure close, efficient cooperation between them and avoid their overlapping performance. To improve the community’s awareness of deposit insurance policies and at the same time make the image of deposit insurers more popular to the community, the DIV should continue to work with the State Bank’s branches in different provinces and local authorities to disseminate and promote deposit insurance policies, and promote information exchange between relevant parties to make deposit insurance policies really become a bridge connecting depositors and deposit insurers.

Construction and pilot implementation of an overall plan is so important for efficient restructuring. The plan should have different potential scenarios and solutions to maintain essential financial and payment services of the banking system, and protect the legitimate interests of depositors. In that context, the DIV should increase its participation in the plan’s pilot implementation to rehearse and affirm its role in the restructuring of credit institutions.