deposit insurance in vietnam group 9’s members: bùi kiều diệu linh hoàng mỹ linh nguyễn...
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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• Deposits withdrawn without notice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