1. DEPOSIT INSURANCE IN VIETNAM
Group 9’s members:
Bùi Kiều Diệu Linh
Hoàng Mỹ Linh
Nguyễn Phương Linh
Đào Thùy Linh
Nguyễn Quỳnh Loan
Bùi Hải Long

2. Brief outline I/Basic knowledge about deposit insurance
II/Deposit insurance in Vietnam

3. I/Basic knowledge about deposit insurance

4. 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Deposits withdrawn without notice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 crisis
Safety net

5. How it works Government run Private entities with government backing
Completely private entities

6. 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

7. 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

8. Purchase and assumption method
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

9. FDIC and its criticism With explicit insurance
Depositors are discouraged to monitor bank’s operation
Bank are encouraged to perform risky activities

10. II/Deposit insurance in Vietnam

11. 1. Legal framework and operation of deposit insurance
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

12. Protecting legitimate rights and interests of depositors
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

13. withdraw deposit institution licenses
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 liquidation
vi. 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.

15. 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

16. Insured Deposits
Maximum coverage
Premium
Type of insured deposits

17. 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.

19. 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)

20. 3. Measures to take
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

21. Q&A Thank you for listening