Big safety net for depositors

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Deposit Insurance of Vietnam (DIV) deputy general director Dr. Nguyen Manh Dung tells VIR deposit insurance will experience some radical changes to optimally protect depositor interests.

What are major criteria in drafting the Law on Deposit Insurance?

Insurance premium levels are set based on a number of criteria. The most important ones are (i) protecting the majority of depositors who lack information about bank operations and (ii) the insurance benefit is often associated with per capita average income, with maximal benefit often triple that benchmark.

The current maximum insurance benefit is set at VND50 million ($2,400) to all depositors which is considered rather low in current context. Is that the case?

A survey made before that VND50 million maximal benefit was set showed that 95 per cent of depositors had deposit surplus averaging VND30 million (now $1,400). In 2005, the government enacted a decree amending some contents relevant to deposit insurance which regulated depositors would receive a maximum benefit of VND50 million in case of risk. That level was then considered to match the first criteria of protecting most depositor interests.

The problem is that current surplus of most depositors is now VND150-200 million ($7,100-$9,500), therefore, current maximal benefit could not shield the interest of most depositors.

Relative to the second criteria, with current average per capita income of about $1,000/year, maximal benefit level could be tantamount to VND60 million ($2,850), a bit higher than current level. However, many people say that actual per capita average income level is close to $1,500/year, tantamount to maximal benefit of VND100 million ($4,750).

So what will be DIV’s proposal?

Two years ago when the US subprime loan crisis afflicted the whole world the DIV asked the government to hike maximal insurance benefit to VND200 million ($9,500), but for some reasons the proposal was not accepted.

Change would be inevitable in the coming period. There will be two options. First, the maximal benefit will be hiked to VND100 million to match second criteria. Second, it will be raised to VND200 million to almost satisfy both criteria ant put depositor mind at ease.

Current insurance premiums are the same to banks not factoring on bank quality standards. What is your view?

At the 13th NA second session in September-October 2011 many deputies assumed current 0.15 per cent premium on bank total deposit surplus was impractical when it neglected the size, ownership form and risk features of credit organisations rendering deposit services.

Our development plans in the coming period propose applied diverse fee levels based on bank risk features. Accordingly, safer banks will enjoy lower premiums than risky ones. Current same level fails to encourage banks to make strides to boost operation efficiency.