Higher coverage levels are needed to improve the domestic depositinsurance system as the Vietnamese banking system integrates more deeplyinto the global economy, according to a seminar held in Hanoi on Aug.23 by the National Assembly Committee on Economy and Budget.
The meeting was held to gather expert comments on proposed amendments to the Law on Deposit Insurance.
Dinh Sy Dung, deputy director of the Government Office's justicedepartment, told the meeting that deposit insurance was viewed as highrisk since it was expected to protect depositors from losses caused by abank's insolvency by guaranteeing them against the loss of deposits.
Deposit insurance currently covers up to 50 million VND (2,400 USD) pereligible deposit per bank or credit institution in Vietnam , butparticipants at the meeting argued that was too low to ensure confidencein the nation's banking system.
However, theyacknowledged that premiums currently charged by Deposit Insurance ofVietnam (DIV) to banks and credit institutions were no longer adequate.
DIV general director Bui Khac Son said that the fixed premium of 0.15percent was too low in the context of significantly growing deposits,threatening the solvency of DIV's current funding.
Throughthe end of last year, total premiums contributed by commercial banksand credit institutions had reached 4.484 trillion VND (215.6 millionUSD), growing at an average annual rate of 20 percent, he said.
However, the proportion of available funding to the total amount ofinsured deposits has fallen significantly from 1.07 percent in 2005 to0.8 percent last year, Son noted. Current funding was therefore onlyadequate to cover the bankruptcies of two mid-sized banks only, he said.
Several experts wondered about the criteria for settingpremiums, with some suggesting that premiums should be set flexiblybased on risk levels presented by the bank. Others said that thepremiums might be according to the inflation rate and the total amountof deposits in commercial banks and credit institutions.
They also discussed whether deposit insurance should be mandatory.Nguyen Am Hieu from the Ministry of Justice said that, in all developedcountries, deposit insurance was required for all credit institutions.
Deposit insurance operated worldwide under three models, Hieu noted,including purchase and assumption, payout and risk reduction methods.
The new Law on Deposit Insurance needed to be in line withinternational standards but take Vietnamese characteristics intoaccount, several participants at the meeting said.
Therole of the deposit insurance agency in supervising the financial marketremained poor, many said, suggesting that the lack of legal frameworkhad contributed to the sector's poor performance.
A numberof experts suggested that the deposit insurance body be operated as acompany with a board of directors, executive management, and an internalaudit system. /.
The meeting was held to gather expert comments on proposed amendments to the Law on Deposit Insurance.
Dinh Sy Dung, deputy director of the Government Office's justicedepartment, told the meeting that deposit insurance was viewed as highrisk since it was expected to protect depositors from losses caused by abank's insolvency by guaranteeing them against the loss of deposits.
Deposit insurance currently covers up to 50 million VND (2,400 USD) pereligible deposit per bank or credit institution in Vietnam , butparticipants at the meeting argued that was too low to ensure confidencein the nation's banking system.
However, theyacknowledged that premiums currently charged by Deposit Insurance ofVietnam (DIV) to banks and credit institutions were no longer adequate.
DIV general director Bui Khac Son said that the fixed premium of 0.15percent was too low in the context of significantly growing deposits,threatening the solvency of DIV's current funding.
Throughthe end of last year, total premiums contributed by commercial banksand credit institutions had reached 4.484 trillion VND (215.6 millionUSD), growing at an average annual rate of 20 percent, he said.
However, the proportion of available funding to the total amount ofinsured deposits has fallen significantly from 1.07 percent in 2005 to0.8 percent last year, Son noted. Current funding was therefore onlyadequate to cover the bankruptcies of two mid-sized banks only, he said.
Several experts wondered about the criteria for settingpremiums, with some suggesting that premiums should be set flexiblybased on risk levels presented by the bank. Others said that thepremiums might be according to the inflation rate and the total amountof deposits in commercial banks and credit institutions.
They also discussed whether deposit insurance should be mandatory.Nguyen Am Hieu from the Ministry of Justice said that, in all developedcountries, deposit insurance was required for all credit institutions.
Deposit insurance operated worldwide under three models, Hieu noted,including purchase and assumption, payout and risk reduction methods.
The new Law on Deposit Insurance needed to be in line withinternational standards but take Vietnamese characteristics intoaccount, several participants at the meeting said.
Therole of the deposit insurance agency in supervising the financial marketremained poor, many said, suggesting that the lack of legal frameworkhad contributed to the sector's poor performance.
A numberof experts suggested that the deposit insurance body be operated as acompany with a board of directors, executive management, and an internalaudit system. /.
