Deposit insurance investment expansion: Proposal to carefully assess risks

Governor Nguyen Thi Hong presents the Government 's proposal on the draft Law on Deposit Insurance (amended). Photo: PT

Presenting the Government's proposal on the draft Law on Deposit Insurance (amended), Governor of the State Bank of Vietnam Nguyen Thi Hong said that regarding insurance payment, the draft Law stipulates the time when the obligation to pay insurance money arises from one of the following times.

Firstly, the bankruptcy plan of the credit institution is approved by the State Bank of Vietnam and the State Bank has a document confirming that the foreign bank branch is unable to pay deposits to depositors.

Second, the State Bank of Vietnam issued a document suspending the deposit-taking activities of specially controlled credit institutions when the credit institution has accumulated losses greater than 100% of the value of its charter capital and reserve funds according to the most recent audited financial statements.

Third, it is a payment case to ensure system safety and social order and safety. Adding the time for payment of social insurance is to urgently handle problems in the use of the Social Insurance Organization's operational reserve fund.

Regarding the deposit insurance payment limit, the draft Law supplements the provisions: when the obligation to pay insurance money arises according to the provisions in Clauses 2 and 3, Article 21 of this Law, in special cases, the Governor of the State Bank shall decide the maximum payment limit equal to all insured deposits of depositors at deposit insurance participating organizations. The deposit insurance payment limit in case of implementing the bankruptcy plan of a credit institution under special control shall be implemented according to the provisions of the Law on Credit Institutions.

Regarding insurance premiums, in order to have a basis for applying a flexible fee mechanism, suitable to reality and still ensuring a stable source of deposit insurance premium revenue, the draft Law assigns the Governor of the State Bank to prescribe deposit insurance premium levels, the application of uniform deposit insurance premiums or differentiated premiums in accordance with the characteristics of the Vietnamese credit institution system in each period. For credit institutions under special control, the draft Law supplements regulations on temporary refund of deposit insurance premium debt arising before the time of being placed under special control, thereby creating a basis for this organization not to immediately pay underpaid, late payment fees and late payment fees (if any). Credit institutions are responsible for developing a plan to repay the amount of money temporarily deferred in the restructuring plan.

Regarding the investment activities of the deposit insurance organization, the draft inherits and supplements safe investment forms, including buying and selling bonds, deposit certificates or depositing money at commercial banks with state capital or with capital of state-owned enterprises over 50%. The draft stipulates that the deposit insurance organization must control and manage risks in investment; the Governor of the State Bank shall prescribe methods and procedures for risk management. Regulations on investment activities of the deposit insurance organization are similar to the investment activities of social insurance and state budget prescribed in the Law on Social Insurance, Decree No. 24/2016/ND-CP stipulating the state budget management regime (amended and supplemented), in which the investment portfolio is expanded for some low-risk investment activities (such as depositing money at commercial banks with state capital ...) to increase the investment efficiency of these funds.

Presenting the review report, Chairman of the Economic and Financial Committee Phan Van Mai said that the Economic and Financial Committee basically agreed with the provisions of the draft Law, and at the same time, proposed that the regulation of deposit insurance premiums must be carefully studied, both to ensure stable revenue sources for deposit insurance organizations to effectively implement deposit insurance policies, and to be consistent with the financial capacity of organizations participating in deposit insurance.

Chairman of the Economic and Financial Committee Phan Van Mai. Photo: Duy Linh

The auditing agency also believes that it is necessary to regularly review and have a roadmap for calculating deposit insurance fees based on the assessment and classification of deposit insurance participating organizations, specifying the criteria for assessing and classifying credit institutions, methods of measuring risks, and methods for calculating deposit insurance fees based on the level of risk; it is necessary to stipulate and clarify that the collection of fees to offset the deficit of the Operational Reserve Fund can only be done in special cases that affect the system, limiting the cases where deposit insurance organizations have to borrow specially from the State Bank; clearly stipulate the limit of fee increase, the time limit for fee increase in accordance with the plan to offset special loans from the State Bank and return to the normal fee level immediately after that.

Regarding the policy of credit institutions under special control being allowed to temporarily postpone payment of deposit insurance premiums, it is recommended that this policy be included in the restructuring plan approved by the competent authority to ensure comprehensiveness when considering the restructuring plan of credit institutions under special control; clarify the period of time for credit institutions to temporarily postpone payment of deposit insurance premiums; and the handling plan in case the credit institution under special control cannot fully repay the amount of money temporarily postponed according to the restructuring plan.

Regarding the insurance payment limit, the examining agency believes that the Governor of the State Bank of Vietnam's regulations on insurance payment limits in each period are appropriate, and at the same time, there should be specific guidelines on the principles for adjusting insurance payment limits in accordance with practice, protecting the legitimate rights and interests of depositors. Regarding payment exceeding the limit, it is necessary to specify the basis for determining "special cases" of payment exceeding the limit, and study a transparent approval process with the participation of relevant agencies such as the State Bank of Vietnam, the Ministry of Finance, etc.

Regarding the investment activities of the Deposit Insurance Corporation, the auditing agency recommends identifying and fully assessing the risks involved when expanding investment activities, developing plans to prevent, control and manage risks, analyzing and assessing the efficiency of capital use when expanding investment activities, forming capital preservation mechanisms, ensuring liquidity and safety for investment activities; investment can only be made when ensuring a balance of capacity and reserve capacity for Deposit Insurance activities.

At the same time, clarify the role of the State Bank as the representative agency of the State ownership of the deposit insurance organization in deciding on investment portfolio criteria, investment structure as well as controlling and managing risks related to investment activities; and stipulate the responsibilities of relevant parties when handling risks.

Deposit insurance participates in handling systemic crisis

One of the new points of the Deposit Insurance in the draft Law on Deposit Insurance (amended) is the regulation that the Deposit Insurance organization shall make special loans to organizations participating in Deposit Insurance: when organizations participating in Deposit Insurance are intervened early, are specially controlled and withdraw money by operation; to implement recovery plans, compulsory transfer plans. The Deposit Insurance organization shall decide on special loans, including loans with/without collateral, with/without interest.

The draft Law supplements regulations on payment to ensure system safety, social order and safety, and stipulates that the deposit insurance organization is granted special loans by the State Bank with 0% interest rate, without collateral in case the amount in the operational reserve fund is not enough to pay depositors; the deposit insurance organization develops a plan to advance deposit insurance fees to compensate for the special loan.

In addition, the draft Law supplements the provisions: In case of an incident or crisis that threatens to endanger the safety of the credit institution system, the deposit insurance organization shall participate in handling the incident or crisis according to the provisions of this Law. The Government shall decide on other measures to handle the incident or crisis.

Regarding this issue, the auditing agency proposed to have specific instructions on the maximum scale of special loans on the total operational reserve fund; to develop a set of transparent criteria to approve special loans; to strengthen the mechanism for monitoring the use of special loans from the deposit insurance organization, to clarify in which cases credit institutions borrow special loans from the State Bank; in which cases special loans from the deposit insurance organization; to have specific instructions on the conditions, interest rates and collateral of special loans of the deposit insurance organization for credit institutions.

Regarding participation in handling incidents and crises in the operations of credit institutions, the Economic and Financial Committee recommends considering not regulating this content because the policy content overlaps with the provisions in Clause 4, Article 162 of the Law on Credit Institutions.

Source: https://baodautu.vn/bao-hiem-tien-gui-duoc-mo-rong-dau-tu-de-nghi-danh-gia-ky-rui-ro-d419657.html