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The draft revised Law on Deposit Insurance (the draft), which has been discussed by the National Assembly deputies at the 10th session, aims not only to modernize the legal foundation of the country’s deposit insurance system but also to strengthen confidence among insured depositors and ensure greater stability within the banking sector.
Better protection of insured depositors
As per the draft, the Governor of the State Bank of Vietnam (SBV) would be vested the authority to determine the deposit insurance payout limit in each period. In special circumstances, when payment obligations arise, the Governor may decide a payout limit exceeding the standard limit, potentially up to the full amount of insured deposits held by a depositor at an institution participating in deposit insurance. For cases involving the bankruptcy of credit institutions under special control, the payout limit would have to comply with the Law on Credit Institutions.
The draft also clarifies the scope of insurance coverage, specifying that only lawful deposits such as savings and payment deposits at institutions participating in deposit insurance are protected. Other financial instruments, such as bonds or certificates of deposit issued by such institutions, might fall outside the coverage.
Notably, the draft lays a strong emphasis on transparency in the process of participation and insurance payouts. Accordingly, depositors would have the right to know whether their credit institutions are covered by deposit insurance and to receive adequate information and guidance whenever questions arise. This measure aims to improve the transparency, build public confidence, and protect depositors before any potential incident occurs.
Expanded role of deposit insurers
Under the 2012 Law on Deposit Insurance, deposit insurers perform only a “passive payout” function, that is making payouts once banks become insolvent or are placed under special control.
To transform deposit insurance into a more active instrument to ensure the stability of the financial and banking system, the draft empowers deposit insurers to intervene earlier, assist in recovery efforts, and participate in the risk resolution from the outset.
Accordingly, deposit insurers might provide liquidity support to member institutions facing temporary payment difficulties, rather than waiting until bankruptcy or dissolution occurs.
The draft also introduces a broader range of support tools, including special loans, purchases of non-performing loans, refinancing assistance, temporary capital contributions, and coordination with the SBV in providing targeted rescue packages. These measures aim to manage liquidity risks in a timely manner and create room for struggling banks to recover.
In addition, the draft strengthens supervisory and early warning functions, granting deposit insurers the authority to collect financial data, assess risks, and make recommendations when signs of instability emerge.
Strengthened stability of the banking system
The draft is expected to reinforce a “confidence buffer” for the banking system through three major reforms.
Firstly, it shortens the payout period, setting a standard of between 30 days and 60 days for complicated cases, enabling depositors to receive insured payments more quickly once obligations arise.
Secondly, it introduces greater flexibility in determining payout limits by transferring the authority to set such limits from the Prime Minister to the SBV Governor. This change aligns with the Government’s policy of power decentralization, ensuring greater flexibility and reducing procedural delays in adjusting payout limits when necessary.
Thirdly, it extends the role and financial capacity of deposit insurers, enabling them to open new investment channels, access special loans, and participate in the restructuring of weak credit institutions. These reforms would bring Vietnam’s deposit insurance framework closer to international standards and best practices.- (VLLF)
