DEPOSIT INSURANCEIN VIETNAM

Group 9’s members:Bùi Kiều Diệu LinhHoàng Mỹ LinhNguyễn Phương LinhĐào Thùy LinhNguyễn Quỳnh LoanBùi Hải Long

Brief outlineI/Basic knowledge about deposit insurance

II/Deposit insurance in Vietnam

I/Basic knowledge about deposit insurance

Why deposit insurance exist

• Credit risk• Liquidity risk

Bank’s risks

• Deposits withdrawn without notice

• Bank insolvency

Bank run • Deposit insurance• Protect depositors

and prevent financial cricis

Safety net

How it works

Government run

Private entities with government backing

Completely private entities

How it works (cont.)

• 119 countries with DI (IADI – June 2008)

• Some countries with more than 1 DI system

• 1 system can cover more than 1 country

FDIC - fast facts

• Established in 1934 – after Great Depression banking crisis

• Insurance up to $250,000 per depositor

• After establishment, no depositor has lost any insured fund as a result of a failure

FDIC working method

Payoff method

•Allow the bank to fail

•Liquidate its asset and pay off creditors

Purchase and

assumption

method

•Find a partner to take over the bank

•Help merger partner with subsidized loans or buying some weaker loans

FDIC and its criticism

• With explicit insurance- Depositors are

discouraged to monitor bank’s operation

- Bank are encouraged to perform risky activities

II/Deposit insurance in Vietnam

•Decree No.89/1999/ND-CP

•Decision No.218/1999/QD-TTG

•Decision No.75/2000/QD-TTG

•Decree No.109/2005/ND-CP

•Decision No.13/2008/QD-TTG

1. Legal framework and operation of deposit insurance

Key objectives

Protecting legitimate rights and interests of depositors

Contributing to the maintenance of the stability of

credit institutions

Ensuring the safe and sound

development of the banking

activities

Main operations of

DIV

i. License new deposit

institutions, issue supplementary

deposit institution licenses and

withdraw deposit institution licenses

ii. Collect insurance premium

iii. Monitor, supervise and inspect the

compliance with the Decree of the

Government on Deposit Insurance and

prudential regulations on banking operations

of the insured Institution

iv. Reimburse depositors within

the regulated limitation of cover

v. Debt collection for financial institutions in

liquidationvi. Publicize and

popularize the deposit insurance activities of

DIV

vii. Provide financial assistance for insured

institutions

viii. Provide financial investment from idle

capital in order to protect the capital

allocated by the State and cover its expenses.

2000

2001

2002

2003

2004

2005

2006

2007

2008

Quarte

r III 20

090

1000

2000

3000

4000

5000

6000

The growth rate of total capital of DIV in 2000-2009 (billion VND)

Participants

State-owned

commercial banks

Joint-stock commercial

banks

Joint-venture

commercial banks

Branches of foreign banks

Finance companies

Finance leasing

companies

People’ credit funds

• Insured Deposits

• Maximum coverage

• Premium

• Type of insured deposits

2. Difficulties and challenges of DIV • The deposit insurance fee in Vietnam is now apply at the same rate of

0.15% of the total balance amount, which is not reasonable

• The percentage of deposit insurance in Vietnam is quite low compare to

other countries

According to international practice, the percentage of the deposit

insurance reserve (deposit insurance fund / total insured deposits) is

usually 2.5% - 3%. This rate in our country is about 1%

6000 billions VND is only 2 times minimum charter capital of a joint-stock

commercial banks, which is not enough when bank run happens.

Vietnam US Sweden World's average

Taiwan Croatia Kenya0%

5%

10%

15%

20%

25%

Reserve rate of deposit insurance

Some countries World's average

• Maximum payment rate of deposit insurance in Vietnam is currently too

low to ensure the confidence of the lender when the event occurs

• In addition, the DIV does not cover deposits in foreign currencies or gold

(the banking system is keeping about 30 billion USD and 100 tones of

gold (5 billion USD)

19%5%

4%

5%67%

Structure of deposit in Vietnam in accordance with amount (VND)

<50mil50mil - 70mil70mil - 90mil90mil - 100mil>100mil

The state bank and DIV should increase the deposit insurance reserve. In the long term DIV may increase the maximum payment to ensure depositors’ confidence

The DIV should move from payoff method to purchase and assumption method

DIV should be independent to state bank activity

DIV should charge insurance fee according to risk level

3. Measures to take

Q&AThank you for listening